HOUSTON (AP) – Sherron Watkins, the former Enron vice president who warned higher-ups the company was a house of cards ready to fall, testified Wednesday she discussed her concerns with founder Kenneth Lay only to learn months later that her job was threatened for speaking up.

Taking the stand at the fraud and conspiracy trial of Lay and former Chief Executive Jeffrey Skilling, Watkins said she met with Lay after taking to heart his encouragement to Enron employees that they could bring any problems directly to him.

“He seemed surprised that these things could be problematic,” the 47-year-old accountant told jurors about the Aug. 22, 2001, meeting, during which she assailed the integrity of financial structures that were intended to lock in values of investments and assets.

The off-the-books structures, known as Raptors, were intertwined with partnerships run by then-Chief Financial Officer Andrew Fastow, who was Watkins’ boss. Watkins said she feared the structures would harm the company because they owed Enron hundreds of millions of dollars and contained only falling Enron stock to repay the debt.

“Accounting just doesn’t get that creative,” she testified.

She said she wanted to leave Lay with one question answered: How are they going to pay for it?

“With loans, Enron stock?” she said. “If they’re going to pay us from our shares, then I don’t think we’d have a fact pattern that would look good to the SEC or investors.”

The meeting came in the wake of an anonymous memo she sent days earlier to Lay. She subsequently acknowledged her authorship.

“I am incredibly nervous we will implode in a wave of accounting scandals,” she said, reading Wednesday from the memo hailed later by Congress as prescient. She also read that the business world in retrospect would consider Enron’s considerable successes “as nothing more than an accounting hoax.”

At her meeting with him, Lay “winced” when she read him comments she received from an unnamed fellow Enron employee who wrote to her: “I wish we would get caught. We’re such a crooked company.”

That message, she said, “slapped him in the face more than anything else.”

“I did most of the talking,” she added.

Within two days after her session with Lay, Enron sought advice “on the consequences of terminating you,” federal prosecutor John Heuston told her.

“I found out in February 2002. It was very shocking,” she said.

Watkins also said she sold some $30,000 in Enron stock at the end of August 2001, then two more blocks of stock in the first week of October. She acknowledged that the transactions, which garnered her $17,000, were not proper.

“I had more information than the marketplace did,” she said under questioning from Heuston.

Watkins joined Enron in 1993, hired by Fastow after working for Arthur Andersen LLP and German trading conglomerate Metallgesellschaft in New York. She examined assets in the Raptors, run by Fastow’s staff and created to hedge Enron investments, which were losing hundreds of millions of dollars.

Watkins, who testified before a congressional committee investigating the Enron collapse and later collaborated on a book about it, appeared confident Wednesday, speaking quickly and gesturing to the jury.

The Fastow-run partnerships, Watkins said of her concerns at the time of her meeting with Lay, had “no skin in the game. They’ve gotten money out. They’ve got no legal obligation to put more money in.” She said her understanding also was that the structures were “under water.”

She said Lay asked her to give him a chance to “look into these structures.” She later talked to Enron’s law firm and in-house legal counsel.

“I probably did most of the talking,” she said of her three-hour session with lawyers. “I brought with me the same memos I gave Ken Lay.”

She said her job prospects outside Enron, which seemed bright and which she pursued because she wanted out of Enron, dried up after the company’s third-quarter 2001 earnings showed losses of over $600 million, included a $1.2 billion writedown and heightened questions about its accounting practices.

“I was shocked this was happening,” she said.

Meanwhile, at Enron, “I was kind of being bounced around a lot,” she said.

Watkins who first worked in finance at the company, moved to the international assets division, then broadband, then back to finance again. After her meeting with Lay, she worked in corporate development – her last title at Enron was vice president of corporate development.

She left in November 2002 and now is a consultant for corporate governance issues.

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