- The Washington Times - Wednesday, May 19, 2004

HOUSTON (AP) — The former No. 2 executive in Enron Corp. investor relations yesterday pleaded guilty to an insider-trading charge 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 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,” Miss Rieker told U.S. District Judge Melinda Harmon. “I knew it was wrong at the time.”

Miss 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 say that on July 5, 2001, Miss 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.

Miss Rieker purportedly acted after learning internally that the company’s broadband unit had lost more than $95 million in the second quarter of 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 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 attorney, Danny Ashby, said Miss Rieker was “committed to doing the right thing and today’s actions are a reflection of that.”

Purported public misrepresentation of EBS’ earnings prospects figures into pending criminal cases against former Chief Executive Officer Jeffrey 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 Mr. Skilling and Mr. Causey has yet to be scheduled.

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

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

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

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