At trial, a tale of two Causeys

Former Enron official has strongly defended accounting methods but admitted to role in fraud

Analysis

December 30, 2005|By NEW YORK TIMES NEWS SERVICE

At a top Enron management meeting in September 2001, a red-faced Richard A. Causey, the chief accounting officer, pounded the table after hearing his colleagues label the company's accounting practices as "aggressive." According to executives in the room, Causey fumed that he considered such criticism a personal affront, adding that he would stake his career on the propriety of Enron's accounting.

On Wednesday, more than four years later, Causey entered a Houston courtroom and pleaded guilty to a single count of securities fraud, admitting that the way Enron accounted for its financial performance presented a false portrait to investors for at least two years.

This tale of two Causeys - one steadfastly defending Enron's accounting decisions, the other admitting criminal liability in a fraud - is at the heart of the prosecution of Enron's former chief executives, Kenneth L. Lay and Jeffrey K. Skilling. And in this dichotomy lies the issues and evidence that could determine whether the two remaining defendants go free or spend much of the rest of their lives in prison.

At this point, no one, not even the lawyers in the case, can be sure which Causey will appear on the stand - or if a third might appear, one who admits limited criminal liability but continues to deny broader allegations. That partly explains why, even as prosecutors were heralding Causey's admission of guilt, lawyers for the remaining defendants continued to celebrate his integrity.

"He is one of the most honest and decent men you can ever get to know," said Daniel Petrocelli, Skilling's lead lawyer. The prosecutors, Petrocelli added, "broke an innocent man."

Causey has never been a top-billed player in the long-running Enron drama. But despite his low profile, the government and the defense always considered him as someone who could become a major witness once the top officers go to court. That is because Causey, as chief accounting officer, attended many of the top-level meetings where decisions were made that are at the center of the criminal case.

Moreover, unlike other former executives who are government witnesses, Causey walks into the courtroom with little excess baggage.

Some of the government's star witnesses, including Andrew S. Fastow, the former chief financial officer, and Ben Glisan, the former treasurer, are weighed down by having defrauded the corporation of millions of dollars for their personal gain. Not so with Causey; there are no secret bank accounts, no hidden streams of cash flowing from company coffers into his pockets.

Where Fastow was roundly detested within Enron for his sharp tongue and elbows, Causey was widely liked, often referred to as a friendly, teddy bear of a man. Indeed, he seems an unlikely type to be playing such a profound role in a major fraud case. Friends and associates describe him as a devoutly religious man devoted to his wife and children, with little in his life reflecting the fast-paced, reckless image now part of the Enron legacy.

Adding to the uncertainty is the limited nature of the admissions by Causey in an affidavit filed as a result of his plea agreement. In the document, he states generally that he participated with "others in Enron senior management" to defraud the investing public by misleading them about the company's true financial performance.

In support of that statement, Causey mentions two examples. What is most interesting about those examples is what they are not. They do not involve some of the broader accounting allegations related to off-books entities, with esoteric names such as the Raptors and LJM2, that Enron used to burnish its financial picture. They make no reference to secret handshake deals involving promises to return money provided by outsiders.

Prosecutors contend such deals allowed Enron to present loans as investments, which, because of the intricacies of the accounting rules, had the effect of transforming the company's financial reports.

The crimes Causey admitted involve one-time deals that, while significant in their effect on Enron's finances, do not lock him into the prosecution's portrait of the company's senior management as being engaged in a nearly continuous conspiracy to defraud investors during the final years of its existence.

The allegations admitted by Causey occurred in the first quarters of 2000 and 2001. In the first instance, he and other executives knew that positive news was about to push up the company's stock price. To profit from that, they removed a hedge from a partnership the company partially owned that held Enron stock. With the hedge, if Enron's stock price went up, the value of a related investment would go down. After it was removed, Enron reported the stock price increase as recurring profits.

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