For the first time in the four-week trial of two former Enron executives, the actions of the company's directors in a critical month in 2001 came under scrutiny during a cross-examination.
The scrutiny came as a defense lawyer for the founder of Enron, Kenneth L. Lay, sought to defuse testimony from a former corporate secretary, Paula H. Rieker. He pushed her to admit that directors had blessed the actions of Mr. Lay and the former chief executive, Jeffrey K. Skilling, that were related to financial structures set up by Andrew S. Fastow, the chief financial officer.
The defense lawyer, Bruce Collins, using notes taken by Ms. Rieker, tried to rebut her earlier testimony that Mr. Lay and Mr. Skilling had sought to mislead investors and had ignored pleas to provide more accurate information. But Mr. Collins won few concessions from Ms. Rieker, who was on the stand for a second day in the trial in federal court here.
Ms. Rieker is a former managing director in investor relations who served as corporate secretary in the three months before Enron collapsed into bankruptcy in December 2001.
The defense lawyer repeatedly pushed her to acknowledge that her notes showed that directors continued to believe that Mr. Fastow's stewardship of the LJM partnership, from which he personally made more than $40 million, was appropriate and had been properly vetted when it was set up in 1999.
Ms. Rieker, the fourth witness in the case, continued to claim that she had told Mr. Lay that he was putting out misleading information about aspects of Enron's operations but that he continued to do so anyway. She rejected Mr. Collins's characterization of comments made by directors in meetings in late October 2001.
"There began to be statements that were protective of the board members," Ms. Rieker said. "My interpretation of many of those statements was that they were being made to support the board's previous decisions now that they were being challenged."
Several statements came from Herbert Winokur, the chairman of the finance committee of the Enron board. In board minutes taken by Ms. Rieker on Oct. 19, he said that "neither Andy nor Enron did anything wrong" and that the company had "disclosed everything necessary."
But facing an inquiry by the Securities and Exchange Commission and scrutiny by the news media, other directors spoke in support of their previous actions.
According to notes taken by Ms. Rieker, one director, John Duncan, said that a "clear Chinese wall has been in place" and directors did not know about Mr. Fastow's compensation from the transactions.
Mr. Lay and Mr. Skilling are accused of conspiring to defraud Enron by lying to investors about the financial results of Enron's businesses. The defense has argued that the former chief executives did nothing criminal. They say their actions were approved by the board as well as by outside auditors and lawyers and have blamed the market's panicked reaction for the fall of Enron.
Mr. Collins made it clearer on Wednesday that the defense would also seek to demonize the actions of Mr. Fastow, who has pleaded guilty to orchestrating myriad schemes to hide Enron debt and inflate profit while enriching himself. He is expected to testify.
Mr. Collins pushed Ms. Rieker to recall the comment of one Enron manager at a heated managers' meeting on Oct. 22, 2001, that Mr. Fastow's LJM and Raptors financing structures "were so stupid they could only have come from Andy Fastow."
But that same day, Ms. Rieker sent an e-mail message to Mr. Fastow, urging him to "hang in there." She explained on Wednesday that she had a "lifelong training of being nice to people" and "didn't think it was my role to punch Andy in the stomach."
Earlier in the day, according to The Associated Press, Mr. Collins questioned Ms. Rieker on an e-mail message she wrote in November 2001 praising Mr. Lay's leadership as "invaluable." She sent the note on the day an Enron rival, Dynegy, announced plans to acquire Enron, which was once the nation's seventh-largest company. Dynegy later abandoned that plan, leaving Enron with no options except bankruptcy.
Mr. Collins asked Ms. Rieker why she would commend someone if she really believed he was involved in wrongdoing. She responded that things had been going badly for Mr. Lay and for Enron and that she wanted to give a note of encouragement.
A testy series of exchanges followed. Ms. Rieker refused to concede much ground, and she sometimes pushed to give more detailed answers when Mr. Collins tried to cut her off. The lawyer repeatedly questioned her expertise concerning accounting and finance matters at Enron. She conceded that she was not an expert in such matters, but that, as a senior investor relations official, she did have an idea of what investors and analysts wanted to know.
Ms. Rieker added that she felt that Mr. Lay and other executives were not providing accurate or adequate information about Enron operations.
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.