Richard Causey, the former top accountant for Enron Corp., pleaded guilty to securities fraud Wednesday and agreed to help federal prosecutors with their case against his former bosses, Kenneth Lay and Jeffrey Skilling.
Lay, Skilling and Causey had been scheduled to be tried together Jan. 17 on conspiracy, fraud and other charges related to the scandal-ridden company’s collapse more than four years ago. The deal leaves Lay and Skilling with another opponent rather than an ally who has been part of their united defense front since the trio was first indicted last year.
Causey, 45, could be more damaging to Lay and Skilling than former Enron finance chief Andrew Fastow, who pleaded guilty to two counts of conspiracy in January 2004. Unlike his former peer, Causey didn’t skim millions of dollars for himself from shady deals.
Also, Lay has repeatedly pointed to Fastow as the crook who abused his trust, highlighting the former finance chief’s admitted skullduggery.
Attorneys following the case said Causey’s turn was generally bad news for Skilling and Lay.
“Less rope is needed for two necks, as the government’s noose tightens,” former federal prosecutor Jacob Frenkel said. ”The government always benefits from the addition of high-level insiders who would have been party to conversations with most senior executives.”
Lawyer Jamie Wareham said Causey would make a good witness if called by prosecutors to testify.
“It’s a bad development for Lay and Skilling in the main because Causey is a likable, chubby, hail-fellow-well-met kind of guy,” said Wareham, global chairman of the litigation department at Paul, Hastings, Janofsky & Walker.
“He just has a demeanor about him that you would like to have as a defense lawyer sitting next to you.”
Causey’s sudden switch from a key member of the defense to a potential star witness for the prosecution could throw off the legal strategy for Skilling and Lay. Shortly after Causey's plea, the judge presiding over the case granted a defense request for a two-week delay, pushing the trial for Lay and Skilling to Jan. 30.
“We have all been working closely together to present a single defense, so if Mr. Causey is not with us we will have to substantially regroup,” Skilling attorney Daniel Petrocelli told the Houston Chronicle.
Sean Berkowitz, head of the Justice Department’s Enron Task Force, said the government did not oppose a two-week delay. He said the deal should streamline what had been expected to be a four- to six-month trial.
Time behind bars
Causey will serve seven years in prison and forfeit $1.25 million to the government, according to the plea deal. As part of the deal Causey cannot later ask for a lesser sentence, but if the government is happy with his cooperation prosecutors can ask that it be reduced to five years.
The maximum penalty for securities fraud is 10 years in prison and a fine of $1 million or twice the amount illegally gained, followed by three years of probation.
Formal sentencing was set for April 21 but could be postponed.
The agreement included a five-page statement of fact in which Causey admits he and other senior Enron managers made various false public filings and statements.
“Did you intend in these false public filings and false public statements, intend to deceive the investing public?” U.S. District Judge Sim Lake asked.
“Yes, your honor,” replied Causey, who said little during the short hearing, appearing calm, whispering to his attorneys and answering questions politely.
His attorney, Reid Weingarten, said Causey reached the deal because it was the right thing to do. Weingarten also represented former WorldCom CEO Bernard Ebbers, who was sentenced in July to 25 years in prison for orchestrating the $11 billion accounting fraud that toppled the telecommunications firm three years ago.
“Today, Rick Causey, a very decent, honorable man, began the process of putting behind him the unfortunate Enron episode,” he said. “All the while, and for the remainder of his life, he will regret the damage and the hurt that so many people suffered as a result of this tragedy.”
He said Causey signed a plea agreement, not a cooperation agreement, but that he will work with prosecutors.
“What is true to the extent that he has any involvement in any upcoming legal proceedings, he will do one thing: He will tell to truth, because that is who he is, that is what he should do, and that is what he is going to do,” Weingarten said.
With Causey’s plea, about 20 former Enron executives have now either been convicted of, or accepted responsibility for, crimes related to the company’s failure.
The case against Causey
Many of the charges against Causey overlapped with the 35 counts of fraud, conspiracy, lying to auditors and insider trading pending against Skilling. The pair are accused of conspiring with others to fool investors into believing a wobbly Enron was healthy in the years leading to its December 2001 crash.
Some of Causey’s charges also overlap with the seven fraud and conspiracy counts pending against Lay, in which the former chairman is accused of perpetuating the ruse after Skilling’s abrupt resignation in August 2001.
Skilling and Lay maintain that they neither committed nor knew of any crimes at Enron, and both have pleaded not guilty.
Causey was a key figure in the huge financial scandal that drove Enron to bankruptcy in December 2001 amid revelations the company had used off-the-books partnership deals to hide billions of dollars in losses and inflate profits.
The scandal opened a window on corporate accounting misdeeds and abuses generally that led to a toughening of federal security laws. It also tainted the Bush administration because Lay had been a close ally of the Bush family for years and one of its biggest political donors.
Causey, after joining Enron from accounting firm Arthur Andersen in 1991, worked closely with Lay, Skilling and former Chief Financial Officer Andy Fastow, who has pleaded guilty to fraud in exchange for a likely 10-year sentence and is cooperating with prosecutors.
Fastow created the off-the-books deals that Enron used to meet its earnings targets and has admitted making millions of dollars from the partnerships, often at Enron’s expense.
Prosecutors charge that Causey and Fastow wrote what is known as the “global galactic” agreement, ensuring the Fastow partnerships would not lose money in the deals, which would have made the way Enron accounted for them illegal.
Before the plea deal, Causey would have faced 36 charges including conspiracy, fraud, insider trading, money laundering and making false statements on financial reports and could have gone to jail for life if convicted. Skilling and Lay will face 35 and 11 criminal counts, respectively.