Global Policy Forum

By Carrie Johnson

The prosecution in the fraud trial of Enron Corp.'s former leaders landed their heaviest blows so far with the testimony this week of Paula Rieker, a former corporate board secretary who described the two men as intimately involved in deceiving investors.

Rieker, 51, a former investor relations official, told the jury that, in the weeks before Enron's 2001 bankruptcy, former chairman Kenneth L. Lay misled analysts and employees about the health of Enron's wholesale and retail units. Lay publicly expressed optimism in the company's chief financial officer, Andrew S. Fastow, at the same time he shared doubts with Enron directors, she maintained. And he turned to a line of credit so often in the company's waning days that, Rieker recalled, a board member later exclaimed Lay treated it "like a damn ATM machine."

She also had damaging testimony to give about former chief executive Jeffrey K. Skilling. Before his abrupt August 2001 departure, Skilling twice ordered last-minute changes to the company's earnings in order to meet or exceed analyst expectations, she told the jury -- moves she said she considered "wrong." She added that she believed Skilling "purposely misrepresented" earnings in a core Internet business unit. Rieker has pleaded guilty to one count of insider trading in 2004, for selling 18,000 shares of Enron stock at a time when she knew the company's high speed Internet unit soon would report large losses. Rieker, who collected $630,000 in the sale, faces up to 10 years in prison. But as a result of her cooperation, she could spend little or no time behind bars.

"I was very well compensated. And I didn't have the nerve to quit," said Rieker, who earned more than $6 million in 2000 and 2001. The Dallas native and cancer survivor spoke clearly using the more formal "stated" when "said" would do. She nodded and smiled as she corroborated the accounts of the government's first two witnesses, sometimes going beyond their testimony to add color and detail. And, for most of her testimony, she appeared almost unshakeable on the stand.Defense lawyers for both Skilling and Lay punctuated her day-long direct testimony earlier this week with tag-team objections -- a signal of how troublesome they found her story and an attempt to slow the government's momentum.

Bruce Collins, a defense lawyer for Lay, repeatedly tried to show that Rieker was testifying beyond her expertise. But in at least one instance, his argument backfired, when the witness shared that she had, in fact, studied accounting at Texas A&M University and had passed the certified public accountant exam. More successful were defense claims that board members, accounting firms and lawyers had approved many of the public disclosures Rieker now criticizes as inadequate or incomprehensible. Indeed, some of the disclosures appeared in filings with the Securities and Exchange Commission, Collins argued, but not in press releases at the time Enron reported its earnings.

On cross-examination, Collins focused on why Rieker could not remember key details of a fall 2000 conversation in the back of a taxicab in which, she said, she told Lay the company should disclose more about the source of the retail unit's profits. Collins suggested it was a case of selective memory for a woman who was otherwise meticulous about taking notes and recalling details. Separately, he asked the witness again and again why she and others did not sound alarms about what she called misleading statements by Lay and Skilling.

"Not one person suggested, 'This is wrong, and this is hiding losses?' " Collins asked Wednesday. No, Rieker replied. Later, she said she tried to be a "good corporate citizen" and that her actions "were strongly influenced by my saturation in the company message." Asked if she felt "brainwashed," the witness said she sometimes believed that.

Rieker focused most of her energy on Lay, whom she portrayed as deeply involved in operations after he replaced Skilling as chief executive. Lay has portrayed himself as an ambassador for Enron, above the day-to-day details. By Rieker's account, Lay reviewed alarming financial reports, scribbled his own additions on scripts and presentations, and traveled to meet with investors in a last-ditch effort to convince them Enron would survive.

Lay took notes on a yellow legal pad and passed them to his lawyers several times during Rieker's testimony. He smiled and shook his head as Rieker parried defense questions and failed to budge from her central accusations. A few times, he and Skilling appeared to commiserate, sharing glances and a few words. Lay's daughter, attorney Elizabeth Vittor, sat between the men at the defense table.

On the attack Thursday morning, Skilling lawyer Daniel M. Petrocelli created a rare break in Rieker's composure. After the defense lawyer repeatedly hovered near the witness box and pointed to documents in a notebook placed in front of Rieker, she said, "May I ask you to step back to the podium?" Several jurors turned their heads at the remark, and Petrocelli later apologized. But Rieker appeared unsettled until she returned from her lunch break.

In more than four hours of aggressive questioning, Petrocelli stressed that Rieker had little direct contact with Skilling and that she was passing on sometimes secondhand impressions rather than explicit orders from top management to fudge the books. He attacked the witness on whether she knew at the time that she was breaking the law -- and by extension, whether his client did -- a crucial element prosecutors must prove in any white-collar case.

"Is it possible you have been influenced by (prosecutors) in some way, just slightly?" he asked. Rieker replied, "I've been influenced to tell the truth."

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