A former Enron vice-president of investor relations testified that in the months before the company failed in late 2001, she witnessed behavior by top company executives that concerned her but did not think crimes were being committed.
”I observed events that I thought were wrong, so I did make a conclusion. I didn’t make a conclusion that it was legal or illegal,” Paula Rieker said under cross-examination in the fraud and conspiracy trial of company founder Kenneth Lay and former chief executive Jeffrey Skilling.
She said Skilling twice told analysts during a conference call on second-quarter 2000 earnings that sales of inoperative fibre-optic cable accounted for $50-million in revenue for Enron’s broadband unit. She said she had told Skilling days earlier that virtually all of the unit’s $140-million to $150-million in revenue came from the fibre sales.
Skilling’s answer let analysts believe the other two-thirds of the fledgling unit’s revenue came from business operations rather than asset sales, she said.
”I know Mr Skilling knew the right answer, and I felt he gave the wrong answer purposely,” she said.
While Rieker insisted Skilling deliberately misled investors, she acknowledged she did not correct him. She also said she felt pressure to omit the fibre sales from a press release about second-quarter 2000 earnings, but she said he never explicitly told her to lie to investors or the public.
”Did you make an agreement with Mr Skilling to break the law?” asked Skilling lawyer Daniel Petrocelli.
”No,” she said.
”Did you make an agreement with Mr Lay to break the law?” he asked.
”No sir,” she replied.
Later, under a second round of questioning from prosecutor John Hueston, Rieker said her contact with Skilling ”conditioned me that he didn’t want to be corrected”.
Rieker, the prosecution’s fourth witness in as many weeks, finished testifying on Thursday, her third day on the witness stand.
She had testified earlier that Skilling twice ordered that the company boost its reported earnings-per-share figures to meet or beat Wall Street expectations and support its stock. She also had said Lay painted a falsely rosy public picture of Enron’s financial health as CEO before and after Skilling held that post from February to August 2001.
She had said her investor-relations boss, Mark Koenig, had told her Skilling ordered the earnings-per-share changes. But Koenig, who testified for seven days, told jurors only that Skilling had authority to order such changes. He did not testify that the CEO explicitly gave such a command.
Rieker acknowledged on Thursday that she never spoke with Skilling directly about the changes.
She pleaded guilty to insider trading in May 2004 and is cooperating with prosecutors. About three months later, Koenig pleaded guilty to aiding and abetting securities fraud for lying to auditors. Both are among 16 ex-Enron executives who have pleaded guilty to crimes.
Petrocelli challenged whether she had actually committed a crime, noting that she admitted to selling stock in July 2001 because she knew broadband unit losses were about to be announced. But the day those losses were announced, Enron shares closed at $49,55 — up from the previous close of $49,10.
Rieker said she felt she admitted ”to being part of a lot of wrongdoing”.
Under the second round of questioning from Hueston, Rieker blinked back tears and said in a choked voice that pleading guilty was very difficult.
”It has had a profound effect on my life,” she said.
Lay and Skilling are accused of repeatedly lying to investors about Enron’s financial health when they allegedly knew complicated financial structures propped up weak businesses before the company sought bankruptcy protection in December 2001. The two men counter that no fraud occurred at Enron other than by a few executives who stole money, and negative publicity that diminished market confidence fueled the company’s flameout.
Skilling faces 31 counts of fraud, conspiracy, insider trading and lying to auditors, while Lay faces seven counts of fraud and conspiracy. If convicted, both face decades in prison. Only Skilling faces allegations of improper stock sales.
Prosecutors said that on Monday Wes Colwell, former chief accounting officer for Enron’s trading unit, would begin testifying. Colwell in October 2003 agreed to pay $500 000 to settle Securities and Exchange Commission allegations of manipulating earnings by using trading profit to offset massive losses in Enron’s retail energy unit. He has not been charged with a crime. – Sapa-AP