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Enron on trial: Causey and effect

The plea deal accepted by former top Enron accountant Richard Causey could spell trouble for Jeffrey Skilling and Kenneth Lay — that is, if prosecutors don't overplay their hand.
/ Source: BusinessWeek Online

With his head bowed and hands deep in his pockets, former Enron chief accountant Richard Causey pleaded guilty on Dec. 28 to a felony charge in connection with the collapse of the energy giant. Standing before U.S. District Court Judge Sim Lake in Houston, a flushed Causey accepted the terms of a deal he and his lawyer negotiated with federal prosecutors.

Charged with more than 30 criminal counts, he pleaded guilty to one count of securities fraud and agreed to forfeit $1.25 million in a Wachovia account he shares with his wife, Elizabeth. Then he left the courtroom with his teary-eyed spouse and drove off in a gray Suburban van, without comment.

How cooperative?
Causey's cooperation with prosecutors could have a major impact on the cases against his former bosses, Kenneth Lay and Jeffrey Skilling. Their joint trial, originally scheduled to begin Jan. 17, has now been postponed until Jan. 30, in order to give defense attorneys time to prepare after losing Causey as a co-defendant and key witness.

"We need to regroup," said Skilling's lawyer, Daniel Petrocelli of Los Angeles, who has shed his tasseled loafers for black cowboy boots after many months holed up in Houston. "We don't have the ability to snap a finger and have Mr. Causey stand up and explain all of the accounting conditions and judgments that were made."

Causey's lawyer, Reid Weingarten of Washington, D.C., said his client "signed a plea agreement, not a cooperation agreement," but declined to elaborate. Still, it was an odd thing to say, since the judge made it clear during the plea that the length of Causey's jail term was dependent on whether he cooperates fully with prosecutors.

'Key insider testimony'
Though Causey avoided eye contact with Petrocelli and Lay's counsel, Mike Ramsey, when they entered the courtroom to hear his plea, both lawyers had nice things to say about him. "He's an honest, decent man" who was broken financially and threatened with over 30 years in jail, Ramsey said. "He confessed to a crime he didn't commit to protect his family."

Nevertheless, the prospect of Causey testifying for the prosecution must be alarming to the defense team, since Causey and Weingarten spent months huddled with them preparing strategy.

"It's a very good development for the government, because it not only provides them with key insider testimony, but provides them with the possibility of significantly shortening the trial," since prosecutors have one less person to prove guilty, said Robert Mintz, a former federal prosecutor who now heads the white-collar crime division of McCarter & English in New Jersey.

Pained expression
Plus, Mintz said, Causey will be a more credible witness than the former chief financial officer, Andrew Fastow, who pleaded guilty to conspiracy and securities fraud last year. "Fastow brings the negative baggage of having lined his own pockets with these off-book partnerships, and has largely been credited with being the architect of these schemes to defraud investors. Causey doesn't present the same bulls-eye for the defense," he explained.

Round and affable, Causey was affectionately called the "Pillsbury Doughboy" by Enron co-workers. His demeanor was always in stark contrast to the leaner, almost brooding Fastow. Causey, now 45, was named chief accounting and information officer at Enron when he was 37. He reported directly to Skilling, and wrote several memos related to questionable off-the-books partnerships. Causey also stood with Lay when he stepped back in and took over as CEO, painting a rosy picture of Enron's financial health during analyst conference calls, even when the company was disintegrating.

Causey's defection would certainly seem a win for the government -- except, perhaps, for the pain that was in his face when he left the courtroom. If jurors interpret that anguish as the result of prosecutorial coercion, then his testimony might turn out to be a boon for the defense.