Paula Rieker, the former second in command of Enron Corp.’s investor relations division pleaded guilty yesterday to insider trading charges for cashing out stock options after hearing that Enron’s broadband unit would post big losses, the Washington Post reported.
Rieker, 49, agreed to enter a guilty plea and to cooperate with the government’s ongoing investigation, the Securities and Exchange Commission stated and the Post reported. She was arraigned yesterday morning and was due to plead guilty before U.S. District Judge Melinda Harmon, the Post reported.
The SEC said that Rieker will pay $499,333 in fines and disgorgement to settle a related civil fraud complaint, the Post reported, adding the SEC had claimed that she illegally 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 claimed that Rieker exercised options on July 5, 2001 to buy more than 18,000 shares of Enron stock for $15.51 per share and then sold them for $49.77 on the open market, earning a profit of $629,000, court papers state.
She had allegedly learned that Enron’s broadband unit had lost $95 million in the second quarter of 2001, even though earlier company estimates had put the losses at $65 million. The broadband unit never made a profit and went bankrupt along with Enron in 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.
Rieker’s guilty plea and cooperation with investigators could set the stage for her providing information about Kenneth Lay, the company founder and former chief executive, who was her direct supervisor when she served as company secretary. No charges have bee filed against Lay. Rieker resigned May 5.