Thursday, December 29, 2005

Key Enron figure pleads guilty

Key Enron figure pleads guilty
By Jeff Franks

HOUSTON (Reuters) - Enron's former chief accountant, Richard Causey, on Wednesday pleaded guilty to securities fraud in exchange for a maximum seven-year jail sentence for his role in the financial scandal that led to the 2001 collapse of the power-trading giant.

Causey, 45, had been scheduled to go on trial next month with former Enron chief executives Ken Lay and Jeff Skilling, facing the possibility of more than 20 years behind bars, but now may cooperate with federal prosecutors against them in a switch legal experts said could hurt his former bosses.

U.S. District Judge Sim Lake postponed the start of the trial to January 30 from January 17 after Causey's plea, at the defense's request.

"He was poised to be a very key part of the defense. He is one of the most honest and decent men you can ever get to know," Skilling lawyer Daniel Petrocelli said outside court.

"They broke an innocent man," he said, referring to pressure from prosecutors.

With Causey's plea, 16 former Enron executives have pleaded guilty to crimes related to the company's failure.

"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," Causey attorney Reid Weingarten told reporters outside the federal courthouse in downtown Houston.

Causey pleaded guilty to a single count of securities related to false filings and statements about Enron's financial performance. He also agreed to forfeit $1.25 million as part of a sentence that Lake said would be set April 21.

"Did you knowingly deceive the investing public?" Lake asked Causey, who replied, "Yes, your honor."

When asked if he knew he knew that giving false public documents and statements was illegal, Causey said, "Yes." He appeared relaxed throughout the hearing and before it began winked and smiled at his wife, who wept after it was all over.

Whether Causey will testify in the trial of Lay and Skilling is uncertain, but his deal with prosecutors calls for them to request a seven-year prison sentence that could be reduced to five years if he cooperates fully.

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, but prosecutors said all but the one count would be dismissed if terms of the plea bargain are fulfilled.

Skilling and Lay will face 35 and 11 criminal counts, respectively.

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."

But Petrocelli said Causey would be a good defense witness because he would tell the truth about Enron.

"The fact is, it was a great company," he said.

(With additional reporting by Deborah Charles in Washington and Ben Berkowitz in New York)