Largely unnoticed earlier this year, the real whistleblower in the Enron scandal received his reward of $1.1 million for alerting the IRS to the fact that the company was using abusive tax practices to generate fake income. According to the whistleblower, “[t]he alleged tax fraud allowed Enron to evade taxes on more than $600 million in income and to report more than $300 million of bogus profit.”
The whistleblower estimated that “he had spent thousands of hours over several years educating and prodding the IRS to take action on various abuses” and that “the numerous fraudulent schemes on which [he] provided original information involved over $10 billion of taxable income.” The whistleblower has remained unknown to the public all this time, even testifying anonymously before a congressional committee.
Contrast that whistleblower with Sherron Watkins, the woman who wrongly has been celebrated around the world as the “Enron Whistleblower.” In reality, Watkins was no whistleblower. One critic colorfully put it this way:
A whistle-blower, literally speaking, is someone who spots a criminal robbing a bank and blows a whistle, alerting the police. That’s not Sherron Watkins.
What the Enron … vice president did was write a memo to the bank robber, suggesting he stop robbing the bank and offering ways to avoid getting caught. Then she met with the robber, who said he didn’t believe he was robbing the bank, but said he’d investigate to find out for sure. Then, for all we know, Watkins did nothing, and her memo was not made public until congressional investigators released it six weeks after Enron filed for bankruptcy.
Actually, the story of Sherron Watkins is worse than that, because we now know that she did not do nothing. Armed with inside knowledge about Enron’s wrongdoing, which she did not make available to the authorities or to the public, she sold her Enron shares.
That looks more like insider trading than it does like heroism. The SEC defines the practice in the following way: “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.” Under questioning by a congressional committee, “Ms Watkins admitted that she had sold shares worth $17,000 in 2002 after learning of the firm’s financial problems and that this action was improper.” Actually, she reportedly “sold about $30,000 of Enron stock in late August 2001 and then netted another $17,000 from stock sales in September,” all of that after writing a letter to Ken Lay about the financial misconduct of the company. When questioned by lawyers for Lay after the Enron meltdown, Watkins admitted “she wishes she hadn’t sold the stock but stopped short of admitting to committing insider trading. ‘I had information that the public didn’t have,’ Watkins said. ‘I wish I hadn’t sold. I don’t know if a crime was committed.’”
When asked on NPR Radio why she had not been criminally charged with insider trading, Watkins had no good explanation.
BLOCK: When you took the stand to testify in the Enron trial, one thing that came up was the fact that you had sold your own stock in Enron in 2001 and you said on the stand that you had more information than the marketplace did, that that sale was not exactly proper. But you were not charged with insider trading.
Ms. WATKINS: That’s right.
BLOCK: Why is that?
Ms. WATKINS: Well, I don’t know. I think part of it is because I wasn’t making, you know, public statements to the contrary. That I was a vice president of Enron, but not in the management circles of the company. You know, I wish I wouldn’t have sold. I usually get a little grief because I did, because I knew there were questionable accounting practices in place and, you know, the people who I sold to did not. But I can’t, you know, I can’t get my head into the government’s head as to why they charged some people and why not others.
Despite all this, Sherron Watkins was touted as the “Enron Whistleblower” in publications such as Time, even though Time acknowledged that the title is bogus:
In the news media, it is “Enron whistle-blower” Sherron Watkins, even though Watkins never really blew a whistle. A whistle-blower would have written that letter to the Houston Chronicle, and long before August; Watkins wrote it to Ken Lay, and warned him of potential whistle-blowers lurking among them. (She quotes one of them as lamenting, “We’re such a crooked company.”)
The shriek of Sherron Watkins’ letter didn’t reach public ears until five months after she wrote it, and even in August concerns like hers seem to have been old news in corner offices, and probably some cubicles, at both companies. And she may well have written it purely to cover herself, to protect that resume when the inevitable happened — the “CYA” letter is as old as business itself.
Nevertheless, Time named her as one of its “Persons of the Year.” That honor and others are cited on her website, where she says that she speaks on “ethics, leadership, and courage around the globe.”
The answer to the question why Sherron Watkins has been celebrated as heroic instead of prosecuted as an inside trader probably is that, with all of the apparently sleazy behavior exposed in the Enron mess, we desperately needed a heroine whistleblower, even a fake one.