Witness Directly Links Lay to Fraud at Enron

Former Enron Corp. Chairman Kenneth L. Lay lied about the company’s precarious financial health in the weeks leading up to its 2001 bankruptcy filing even after learning it had no access to new sources of cash, a former investor relations executive said Tuesday in the first testimony to directly link Lay to fraud at Enron.

The testimony of Paula Rieker came in the fourth week of the fraud and conspiracy trial of Lay and former Chief Executive Jeffrey K. Skilling in Houston. Rieker also suggested that Lay was involved in the fraud a year earlier than prosecutors have previously alleged.

“I had the opportunity to travel with Mr. Lay and hear him give analysts presentations where he described the strong performance” of Enron Energy Services, the company’s retail energy division, she told jurors. “I told Mr. Lay a significant amount of the earnings came from the sale of stock and not from core activities.”

Lay didn’t change his message to analysts once he had been told it was misleading, Rieker said.

Prosecutors have been struggling to keep testimony focused on their central charge: that Lay and Skilling lied repeatedly to investors. Defense lawyers dragged out the testimony of the first two witnesses, shifting the focus to complicated accounting transactions. Rieker’s testimony provided the first simple, direct evidence of some of the charges against Lay.

Prosecutors accuse Lay, 63, and Skilling, 52, of lying to analysts and investors about Enron’s performance. They also accuse the defendants of hiding billions of dollars in debt and losses in off-the-books partnerships.

The two men contend that former Enron finance chief Andrew S. Fastow created and oversaw the entities, which are partially blamed for the company’s collapse.

Enron had more than $68 billion in market value before it filed for bankruptcy protection.

Rieker, 51, was managing director of investor relations and corporate secretary during Enron’s final months before the bankruptcy filing. She testified that Skilling told investor relations chief Mark Koenig that he wanted earnings per share for the second quarter of 2000 increased to beat the expectations of Wall Street analysts.

Rieker is among 16 former Enron executives who have pleaded guilty to criminal charges related to Enron’s meltdown and agreed to cooperate with prosecutors.