Causey admits his role in Enron fraud scheme

Accountant expected to testify against Lay, Skilling

December 29, 2005|By THE DALLAS MORNING NEWS

HOUSTON --A guilty plea by Enron's former accounting chief yesterday strongly boosted the government's conspiracy and securities fraud case against the ill-fated company's founder, Kenneth L. Lay, and former chief executive Jeffrey K. Skilling, lawyers say.

Richard A. Causey, 45, was scheduled for trial with Lay and Skilling next month, but he entered a plea agreement with prosecutors in exchange for a promised maximum seven-year prison sentence.

The deal leaves Lay and Skilling with another opponent, rather than an ally who has been part of their united defense front since the three were indicted last year. As part of his plea bargain, Causey will testify against his former co-defendants.

"This is a very, very significant win for the government," said Philip Hilder, a former federal prosecutor who represents Enron whistle-blower Sherron Watkins.

"There are very few people who can testify what may have been said in the corporate suites ... and Causey is certainly one of them," Hilder said. "As chief accounting officer, he knows where the financial skeletons are buried."

U.S. District Judge Sim Lake accepted Causey's guilty plea to one count of securities fraud as preparations intensified for a trial widely viewed as the climax of the Enron saga. The once highly regarded energy trading company collapsed in an accounting scandal in 2001, costing thousands their jobs and retirement savings and losing investors billions.

Causey, who had faced 34 counts, including conspiracy, wire fraud, money laundering, lying to auditors and insider trading, answered the judge's questions in a firm, unemotional voice. Afterward, he huddled briefly with teary-eyed supporters outside the courtroom.

Both he and his lawyer, Reid Weingarten, declined to comment to reporters.

Lay's attorney, Mike Ramsey, described Causey to reporters as "broke ... threatened with 35 to 40 years in prison ... with a wife and three children."

"He's pleading guilty to something that may very well not be a crime," Ramsey said.

Prosecutors "broke an innocent man," said Skilling's lawyer, Dan Petrocelli.

Lawyers for Lay and Skilling said they're unafraid of Causey's testimony, although they sought and won a 13-day delay in the trial, until Jan. 30, to regroup.

They contend that crimes were committed at Enron, but not by Lay or Skilling. Causey "is a guy that will testify to the truth," Ramsey said. "In the end, the truth will help everybody."

Prosecutors - who had been bargaining with Causey's lawyers intermittently for months - declined to comment beyond a news release detailing the deal and noting that Causey's sentence can be reduced to five years "if he provides full, complete and truthful cooperation."

Other lawyers familiar with the case said Causey's changing sides offers key support to a prosecution relying in part on testimony by Andrew S. Fastow, a former chief financial officer who pleaded guilty last year in exchange for a 10-year sentence. Fastow has potential credibility problems because he admitted that he not only cheated investors, but also stole millions from Enron.

"Fastow has a lot of issues, but now Fastow is going to have a lot of reinforcement," said John Fahy, a former federal prosecutor now in private practice in New Jersey.

Some observers raised the possibility that either Skilling or Lay might now reconsider some kind of plea bargain. But most said it's unlikely.

"The question at this point would be whether there was any kind of deal that the government would be willing to offer Skilling and Lay that they would be willing to take," said lawyer Robert Mintz, a former federal prosecutor.

Lawyers for Skilling and Lay said firmly that there will be no plea deals, that they plan to fight to the end.

But when they said that to Lake in a trial-planning session after Causey's plea, the judge smiled and said, "That's what Mr. Weingarten told me," a reference to Causey's lawyer.

Some analysts said Causey's plea will simplify the case prosecutors must present.

"It enables the prosecution to focus more on the allegation that Jeffrey Skilling and Ken Lay knew that there were bad things going on in the company and nevertheless were focused on projecting an image that all was well," said Jacob Frenkel, a former Securities and Exchange Commission enforcement lawyer now in private practice in Maryland.

"There is less of an emphasis on the intricacies of financial accounting, which would have been necessary in a prosecution that included Richard Causey" as a defendant, Frenkel said.

Causey pleaded guilty to Count 19 of the indictment, which refers to the filing of a false quarterly financial report for Enron. In addition to accepting a prison term, he agreed to pay $1.25 million to cover fines and forfeitures required under the law.

Although defense lawyers described him as an innocent man forced to plead guilty, analysts said Causey faced significant risk going to trial, in part because of a secret memo dubbed "global galactic" in which he allegedly agreed to some of Fastow's accounting tricks.

"Causey has no defense," said John Coffee, a Columbia University law professor. "He's an accountant, and he was right there at ground zero."

Causey is the 16th defendant to plead guilty in the Enron debacle. Thirty-four people have been charged, with five convicted and one acquitted. Others await trials.

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