Lawyer instructed Enron on dealing with allegations

WASHINGTON -- An attorney at Enron Corp.'s outside law firm advised the company's in-house legal counsel on how to handle employees who questioned Enron's accounting practices, a lawmaker leading one a congressional investigation of the company said Sunday.

Days before the lawyer's Aug. 24 correspondence, Enron executive Sherron Watkins had delivered a memo to then-company chairman Kenneth Lay, warning him about what she considered dubious accounting activities.

"They're asking the lawyers ... what happens if we fire her?" said Rep. Billy Tauzin, R-La., chairman of the House Committee on Energy and Commerce.

"It's the ultimate in skullduggery," said Ken Johnson, spokesman for the House committee.

On Aug. 22, Watkins wrote Lay a memo questioning the use of outside partnerships, run by Enron executives, to keep hundreds of millions of dollars in debt off the parent company's books.

E-mail dated Aug. 24 from Carl Jordan, a lawyer for the Houston firm Vinson & Elkins, provided Enron employee Sharon Butcher with "thoughts on how to manage the situation with the employee who made the sensitive report." Tauzin said Butcher worked for James V. Derrick Jr., Enron's general counsel.

The e-mail noted the employee "requested reassignment to another department," then advised, "Assuming a suitable position can be found, I recommend documenting in memo form that the transfer is being effected per her request."