The spotlight was largely on former Enron Chairman Ken Lay today as a former company executive accused him of repeatedly misrepresenting the company's financial health to investors, analysts and even employees.
Paula Rieker ... told jurors that in one case she even corrected Lay and he still continued to misrepresent the truth about Enron's retail business. ...
"I told Mr. Lay a significant amount of the earnings came from the sale of stock by Enron Energy Services and not from core activities," Rieker said, meaning it was one-time revenue that did not indicate EES was strong. She said Lay did not change his pitch. ...
She said she was "very bothered" by the company decision to continue to make EES look like a growth story in 2001 by shifting its losses to the more profitable trading division. She said when she complained, her boss (Mark) Koenig (who has previously testified for the prosecution) said "'You may not agree with it, but your job is to deliver the company message.'"
Rieker said she saw Lay mislead analysts by pretending not to know the name of the financial deal called Raptor that was unwound at a $1 billion hit to shareholders equity. She said Lay also misled analysts about why the company stopped charting the future contract value of the retail division.
One of the most dramatic moments of the day may have been one of the least significant legally.
Lay isn't charged with insider trading or with stealing from the company as it went into its death spiral. But prosecutor (John) Hueston showed a timeline including troubles at Enron in October and November 2001 that contrasted the company's ills with Lay's drawing millions out in cash.
While the timeline focused on things like the pension plan closing to employees who wanted to move stock, the cancellation of the holiday party, the failure of the Dynegy merger, it also showed Lay withdrawing $1 million here or $2.5 million there in cash from a revolving loan account with the company approved by the board in better times.
Lay withdrew $1 million the day the Dynegy deal died, which was the last hope of keeping Enron out of bankruptcy court. Lay's lawyer Bruce Collins asked Rieker on cross-examination if that amount wasn't just a drop in the bucket when hundreds of millions of dollars were being called in by Enron creditors at the same time but she said "No sir."
Rieker recalled for jurors how in February 2002 the board of directors was presented with a report that included Lay's stock sales for 2001, the year the company came apart.
"I learned that Mr. Lay had been selling stock back to the company in return for cash in excess of $70 million," she said. When Hueston asked about how the board of directors reacted, Lay's lawyer objected several times.
"They were outraged," Rieker finally answered.
Asked if she could recall what any specific board member reaction, Rieker said, "John Duncan exclaimed that 'Mr. Lay was using Enron as a damn ATM machine.'" By the time Rieker repeated that, because of an objection in mid-sentence, it appeared every juror was taking notes.
Rieker also bolstered some of the testimony given by Koenig about Skilling's involvement in altering earnings reports before they were made public.
She said she understood that in January 2000 and again July 2000 that Skilling ordered that earnings per share be increased. In January, she said it was done virtually overnight when they realized analysts were estimating earnings at 31 cents, rather than the 30 cents Enron almost reported.
In July 2000, she said, her boss told her Skilling ordered the earnings be raised a couple cents over the 32 cents they had planned. She said analysts and investors were told it was strong underlying performance that caused the hike to 34 cents.
The truth, she said, "would have really hurt the credibility of Enron and it would have hurt the stock price."
I took a bit more than the usual liberty with that excerpt because it reflects so clearly the simply bottomless hubris of Kenny and Jeffrey. Besides the usual "what made these men think they could get away with this" has to be "what did they think their former underlings were going to say once they had made a plea deal with the Feds"?
It's really too bad they can't get life in prison, isn't it ?
(I'm not a death penalty advocate.)