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Written by: Staff
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HOUSTON, Mar 16 (Reuters) Enron Corp. whistle-blower Sherron Watkins said on Wednesday she warned then-chief executive Ken Lay in August 2001 that financial fraud threatened the company, but his only response was to launch a ''bogus'' investigation and try to have her fired.

Prosecutors said at the same time Watkins, then an Enron vice president, was trying to save the now-bankrupt energy trading firm, Lay was selling off millions of dollars of Enron stock.

It turned out Watkins was no angel in that regard either, as defense attorneys later pointed out she sold $47,000 in stock during the same period.

She sidestepped the question when asked if she had committed the crime of insider trading.

''I had information the public didn't have. I wish I hadn't sold. I don't know if a crime was committed,'' said the woman who in 2002 was named one of Time Magazine's persons of the year.

Watkins, testifying in the fraud and conspiracy trial of Lay and fellow former Enron boss Jeffrey Skilling, said Lay appeared to take her seriously when she told him about off-the-balance sheet partnerships managed by then-chief financial officer Andrew Fastow that were running up huge losses for Enron and being improperly accounted for on the company's books.

In a now famous Aug. 15, 2001 memo, she wrote to Lay ''It sure looks to the layman on the street that we are hiding losses in related partnerships and will compensate that company with Enron stock in the future.'' ''I am incredibly nervous we will implode in a wave of accounting scandals,'' she wrote.

On Wednesday, Watkins testified, ''This was not just aggressive accounting, it was fraudulent accounting. I couldn't believe we had done it.'' In an Aug. 22, 2001 meeting with Lay, he promised an investigation, Watkins said, but then had the lawyers and accountants who originally approved the questionable deals conduct the probe.

They found problems that contributed to Enron taking a $1.01 billion charge to earnings in the third quarter of 2001 and slashing shareholder equity, but decided the accounting for the side deals had been fine.

''I thought the investigation was bogus,'' Watkins said.

Under questioning by prosecutor John Hueston, Watkins said she was not aware that in the days after her memo Lay sold off $16 million in Enron stock to pay off loans the company had given him.

In October, Lay sold off millions of dollars more in stock after assuring investors and employees the company was still strong, Hueston said.

Defense attorneys have said Lay sold the shares because he had margin calls to meet, but Watkins wondered why he could not have sold some of his other assets.

''You've got Aspen (Colorado) homes to sell, you've got other ways to raise cash,'' she said.

She offered no explanation for her own stock sales.

Watkins said Lay ended their August meeting by asking what he could do for her. She asked to be assigned to a different department because she was working under Fastow and did not feel comfortable there.

It was only later, in an appearance before a U.S.

congressional committee in Washington, that she found out the company almost immediately began looking into the possibility of firing her.

''I felt nauseous. I went to Ken Lay specifically because I didn't think he would try to fire me. I would have had to sell my house and move in with my parents,'' she said.

In December 2001, Enron declared bankruptcy amid disclosures the deals with Fastow had been used to hide debt and inflate profits.

Lay and Skilling face multiple criminal charges that they knew of the financial fraud in Enron, but hid it from investors so the stock price would not fall.

They have denied wrongdoing and blamed the fall of Enron on Fastow.

Fastow has admitted stealing millions from Enron through the off-the-books deals and pleaded guilty to two conspiracy charges. He will soon go to jail for 10 years in a deal with prosecutors.

Watkins has co-authored a book called ''Power Failure: The Inside Story of the Collapse of Enron,'' and said she now makes her living giving speeches -- charging up to $30,000 for each appearance -- about ''failed business leaders.'' REUTERS SD kp2010

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