Former Enron Corp. chief executive Jeffrey Skilling ordered last-minute changes to at least two quarterly earnings reports so that the company could meet or beat analysts' expectations, a former vice president of investor relations testified Tuesday.
Paula Rieker, 51, 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 he 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 had ordered a penny increase in company earnings-per-share figures for the fourth quarter of 1999 to match analysts' expectations of 31 cents.
She said Koenig told her Skilling had ordered a 2-cent hike to reported earnings per share in the second quarter of 2000 - hours before they were officially released - so that 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 that Skilling had ordered the changes, Koenig stopped short of saying his boss had 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 had thought the company was fudging 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 the 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 write-down 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.