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Witness: Enron misled analysts

Former VP says Skilling clouded truth about sales

HOUSTON -- A former Enron Corp. vice president of investor relations testified yesterday that in the months before the company failed in late 2001, she witnessed behavior by top company executives that concerned her, but she didn't 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 fiber-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 fiber 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 didn't correct him. She also said she felt pressure to omit the fiber 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.

Rieker, the prosecution's fourth witness in as many weeks, 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 chief executive before and after Skilling held that post from February to August 2001.

She pleaded guilty to insider trading in May 2004 and is cooperating with prosecutors.

Petrocelli noted Rieker earned $2 million in salary and other compensation in 2000, and $3 million in 2001 for a role she described as repeating management's message about Enron to investors. She became corporate secretary in September 2001, maintaining minutes of board meetings and answering to Lay.

''You were paid $3 million in 2001 more than just to hear management's answers and repeat them? You're not a tape recorder, fair statement?" Petrocelli asked.

''Fair statement," she replied.

Rieker said she ''packaged" descriptions of Enron's businesses made by Lay, Skilling, and division heads and repeated those messages to investors. When Petrocelli asked if she was an architect of those messages, she said she was a ''key packager."

Yet near the end of 2001, when Rieker submitted a list of her accomplishments to superiors, which would be used to determine her bonus, Rieker described herself as a ''key architect" of the company's message.

''I overstretched on my accomplishments for my review," she said.

Rieker lost some of her composure yesterday. Where she had been poised and smiling on direct examination, her face grew taut and her lips pursed under Petrocelli's grilling. She even asked him to move away from her.

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