Sherron Watkins: The Party Crasher

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"The reason people love Enron is because there was really no defining organizational structure," says Watkins. "If you wanted to start something and go for it, you could. In other companies you could get bogged down behind a boss." One month she was in Panama sizing up a copper mine, the next she was in Hong Kong trying to finance a nickel deal. Sure, Enron was a pressure cooker--employees were evaluated every six months in its now legendary "rank and yank" system--but Watkins thrived on the competition. She also satisfied the taste for frippery that she had acquired in Manhattan. While she steered clear of Houston's snooty charity-ball circuit, she bought a green Lexus SUV and a house in tony Southampton for her and her new husband Rick, a vice president with Canadian Superior Energy.

By spring 2001, the technology bubble was bursting, and Enron was slipping along with it. In late June, Watkins went to work directly for Fastow, who charged her with finding some assets to sell off. But everywhere she looked she found the same thing: fuzzy off-the-books arrangements that seemed to be backed by nothing more than now deflated Enron stock. No one she asked could--or cared to--explain what was really going on. Knowing that others had got into trouble after challenging Skilling, who by then was CEO of the entire company, Watkins began scouting for a new job and went on a round of interviews at Reliant Energy. Her plan was to sign a new job contract and confront Skilling on her last day at Enron.

But on Aug. 14, Skilling abruptly quit, and Lay invited employees to put any concerns in a comment box. The next morning Watkins sat at her computer and tapped out her first anonymous one-page memo in a single two-hour flourish. "I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote. But the next day, when Lay held a company-wide meeting and didn't allude to her concerns, she arranged a face-to-face appointment for Aug. 22. In the intervening days, she shared her worries with a friend at Andersen and drafted a longer, seven-page memo to hand to Lay. It was even more cataclysmic than the first. She had also annotated a document on one of the suspect partnerships, writing in bright blue letters in the margin: "There it is! This is the smoking gun. You cannot do this!"

Meanwhile, Watkins was getting jumpier. She was waking up at 2 a.m. rehearsing what she would say to Lay. Though she received the Lay family Christmas card each year, the two had barely ever spoken. At one point, she faxed her mother a copy of the memo. Harrington winced at "two sarcastic parts" that sounded somewhat self-serving. The offending passages--"My 8 years of Enron work history will be worth nothing on my resume"; "For those of us who didn't get rich these last few years, can we afford to stay?"--were promptly excised from the final version.