HOUSTON – Former Enron Corp. Chief Executive Jeffrey Skilling ordered last-minute changes to at least two quarterly earnings reports so the company could meet or beat analysts' expectations, a former vice president of investor relations testified Tuesday.
Paula Rieker, 51, also said Enron founder Kenneth Lay told the company's directors in October 2001 that Enron's highly touted retail energy unit had undergone "lots of retooling" to address chaotic billing and paltry cash flow, but neglected to disclose those issues days later to Wall Street while praising its reported profitability.
Poised and articulate, Rieker often looked at jurors when answering prosecutor John Hueston's questions. Rieker is the government's fourth witness in the fourth week of the fraud and conspiracy trial of Skilling and Lay. She had yet to be cross examined.
She said she learned in January 2000 from former Enron investor-relations chief Mark Koenig that Skilling ordered a penny increase in company earnings-per-share figures for the fourth quarter of 1999 to match analysts' expectations of 31 cents.
She also said Koenig told her Skilling ordered a two-cent hike to reported earnings per share in the second quarter of 2000 — hours before they were officially released, so Enron could top expectations and generate Wall Street enthusiasm for its stock.
Rieker's testimony was stronger than that of Koenig, the prosecution's first witness. While she said Koenig told her Skilling ordered the changes, Koenig stopped short of saying his boss explicitly issued such an order, testifying only that Skilling was authorized to do so.
Neither Rieker nor Koenig addressed what accounting methods may have been behind the changes.
But she said Enron's stock price would have suffered if analysts believed the company fudged numbers just to meet or beat their expectations.
"Again, it would have really hurt the credibility of Enron and would have hurt the stock price because for analysts, strong underlying performance was a good thing, and management changing the earnings just to beat expectations by 2 cents would have been a bad thing," she said.
Regarding Lay, Rieker said he was among top managers who told Enron's directors about problems that plagued the company's retail energy unit in a two-day board meeting in October 2001, a week before the company disclosed hundreds of millions of quarterly losses and a $1.2 billion writedown in shareholder equity.
Those problems included up to $1 billion in uncollected bills because of the company's chaotic billing procedures and lack of cash flow. Rieker said Lay summarized the problems by telling the board "there had been lots of retooling" with "good progress" in solving problems.
"Do you ever recall Mr. Lay discussing those problems with investors in August or October 2001?" Hueston asked.
"No," Rieker replied.
Her testimony appeared to contradict Lay's oft-repeated claim that he believed Enron was strong when he resumed the CEO position after Skilling abruptly resigned from the job in mid-August 2001. She became corporate secretary in September, and in that role she maintained board meeting minutes and answered to Lay.
Lay and Skilling are accused of repeatedly lying to investors about Enron's financial health when they allegedly were hiding chaos and weak performance.
The two men contend there was no fraud at Enron other than a few executives who stole money, and negative publicity that siphoned market confidence fueled the company's swift spiral into bankruptcy proceedings in December 2001.
Rieker is among 16 ex-Enron executives — including Koenig — who have pleaded guilty to charges and are cooperating with prosecutors. She pleaded guilty in May 2004 to insider trading for selling stock based on inside information that Enron's broadband unit lost more money than anticipated.
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. Both sold millions of dollars in stock before Enron went bankrupt, but only Skilling faces allegations of improper stock sales.