Enron witness defends claim Lay hid troubles

By Matt Daily

HOUSTON (Reuters) – A key prosecution witness at the trial
of former Enron CEOs Ken Lay and Jeffrey Skiling parried a
withering cross examination on Wednesday, sticking to claims
Lay covered up the looming financial disaster at the company.

The witness, Paula Rieker, had an inside view of the top
executives in her job as corporate secretary and her testimony
has been the strongest yet at the trial to link Lay to
wrongdoing at the company that was once the darling of Wall
Street and the nation’s seventh largest.

Lay’s lawyer Bruce Collins questioned Rieker on her
testimony from the previous day when she said Enron’s board of
directors was growing worried because of its difficulty in
accessing new supplies of cash to continue operating.

Showing data given to the Enron board in October 2001, just
weeks before its December bankruptcy filing, Collins grilled
Rieker, saying “that is in fact showing the liquidity has
improved.”

“No, sir, that number had reduced significantly,” she
answered, citing figures that indicated the company had access
to only one-third of the money in the financial markets it
could have accessed just weeks earlier.

On Tuesday, Rieker testified Lay knew the company could
face a cash squeeze, but lied to employees and analysts by
describing Enron’s liquidity as “strong.”

Lay, 63, and Skilling, 52, are charged with conspiracy and
fraud for covering up financial problems that led to the demise
of the company. Skilling also faces insider trading charges.

Both men have proclaimed their innocence and laid the blame
for Enron’s downfall on former chief financial officer Andrew
Fastow, who ran the off-balance sheet partnerships that hid
billions of dollars in debt and propped up profits.

Fastow has pleaded guilty to crimes at the company and is
expected to be a key witness at the trial.

Rieker, 51, is the fourth witness in the trial that began
January 30 and in expected to last at least another three
months. She has pleaded guilty to insider trading and is one of
several government witnesses cooperating with prosecutors in a
bid to shorten her prison term, which could run 10 years.

Collins targeted Rieker’s statements that the company
sought to hide the declining performance of its retail energy
arm, which was expected to fall short of its 2001 performance
target.

Collins said Rieker was not in a position to judge a
decision by retail division head David Delainey to release
rosier figures instead of the poor performance statistics.

But Rieker, who remained composed under rapid-fire
questioning, often stopping to examine documents and address
the jury directly, defended her testimony.

“David had more expertise about the retail business. I felt
that I had more expertise on what the investor community
expected and relied upon,” answered Rieker, who had also worked
as an investor relations executive at Enron.

At the end of the day, defense lawyers played a video of a
now-widely broadcast October 2001 employee meeting in which
employees criticized Lay and other managers for the chaos that
was enveloping the company.

“I would like to know if you are on crack,” one employee
wrote in a question read by Lay at the meeting. “If so, that
would explain a lot. If not, you may want to start because it’s
going to be a long time before we trust you again.”