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Former Enron executive pleads guilty

The former No. 2 executive in Enron Corp. investor relations pleaded guilty to an insider trading charge Wednesday for cashing out stock options after learning about bad news for Enron’s highly touted broadband unit.
/ Source: The Associated Press

The former No. 2 executive in Enron Corp. investor relations pleaded guilty to an insider trading charge Wednesday for cashing out stock options after learning about bad news for Enron’s highly touted broadband unit.

Paula Rieker agreed to cooperate with the Justice Department’s continuing investigation and turn over to the government $499,333 in profits from her illegal stock sales.

She also agreed to return to Enron $130,000 in retention bonuses she received since the energy company went bankrupt in a sea of scandal in 2001.

All employees who received such bonuses had to sign papers saying they haven’t illegally traded stock and cannot be identified as defendants in lawsuits related to the company’s implosion.

“It was wrong to sell my stock, but I did,” Rieker told U.S. District Judge Melinda Harmon. “I knew it was wrong at the time.”

Rieker also settled a civil complaint filed by the Securities and Exchange Commission that said she provided “substantial assistance to Enron executives and senior managers in the dissemination of false and misleading information to the public about Enron business units in analyst calls and earnings releases.”

Prosecutors allege that on July 5, 2001, Rieker exercised options to buy more than 18,000 shares of Enron stock at $15.51 per share, then sold them on the open market at $49.77. She made $629,000 on the transaction, court papers said.

Rieker allegedly acted after learning internally that the company’s broadband unit lost more than $95 million in the second quarter 2001. The company had said earlier in the year that the unit would lose about $65 million throughout 2001.

Enron Broadband Services never posted a profit and went bankrupt along with Enron in December 2001.

“Rieker learned that the guidance Enron had provided the financial markets regarding EBS’ anticipated losses was flawed and that EBS would likely be required to report greater losses than it had previously reported,” court papers said.

Her lawyer, Danny Ashby, said Rieker was “committed to doing the right thing and today’s actions are a reflection of that.”

Alleged public misrepresentation of EBS’ earnings prospects figures into pending criminal cases against former CEO Jeff Skilling and former top Enron accountant Richard Causey, as well as a separate case against seven former EBS executives slated for trial in October.

A trial date for Skilling and Causey has yet to be scheduled.

Rieker also could play a role in the Justice Department’s ongoing investigation of Enron founder and former chairman Kenneth Lay, who has not been charged.

As a managing director for investor relations during Skilling’s tenure as CEO, she was responsible for preparing press releases about earnings and scripts for quarterly earnings conference calls with analysts.

Rieker replaced Rebecca Carter, then Skilling’s girlfriend, as corporate secretary in September 2001, more than a month after he quit after serving as CEO for six months. As corporate secretary Rieker answered directly to Lay and Jim Derrick, then Enron’s general counsel. In early 2002, Lay resigned and Derrick retired.

The company’s appearance of success began crumbling with its announcement of massive third-quarter losses in mid-October 2001.

Rieker resigned May 5 when her name surfaced as a target in the Justice investigation.

In an unrelated action this week, the Snohomish County Public Utility District north of Seattle filed with the Federal Energy Regulatory Commission 450 pages of transcripts of telephone calls from former Enron traders related to the West Coast energy crisis of 2000 and 2001.

Eric Christensen, a lawyer for the utility, said it is seeking to convince a FERC administrative law judge that Enron should be required to disgorge “all the unjust profits they made,” which could be as high as $2 billion, he told The Associated Press on Wednesday.

The calls on the transcripts are central to the Justice Department’s investigation of Enron’s trading practices. John Forney, a former top trader in Enron’s Portland, Ore. office, is slated to stand trial on fraud charges in October. Two other former traders, Timothy Belden and Jeffrey Richter, have pleaded guilty to one count each of wire fraud and are helping prosecutors.

For example, in one transcript, one trader talks about a colleague’s deal in which “he steals money from California to the tune of about a million.”

The trader on the other end of the call asks, “Will you re-phrase that?”

“OK, he, um — he arbitrages the California market to the tune of a million bucks or two a day.”