By Carrie Johnson
Washington Post Staff Writer
Thursday, December 29, 2005
Enron Corp.'s former top accountant pleaded guilty yesterday to a single securities fraud charge in exchange for a prison sentence of five to seven years, setting the stage for potentially damaging testimony against onetime chief executives Kenneth L. Lay and Jeffrey K. Skilling.
The guilty plea by Richard A. Causey, 45, gives the Justice Department's Enron Task Force another insider to help guide jurors through a maze of complex deals that helped pitch the Houston energy company into bankruptcy.
Defense lawyers for Enron's former leaders immediately appeared on the courthouse steps to cast doubt on the importance of the deal and express what they described as sympathy for Causey, whom they called a "broken man" pressured to admit wrongdoing to save his family.
The agreement rewrites the script for Lay and Skilling's upcoming fraud trial, the climax of a series of financial scandals that rocked investor confidence and sent markets reeling.
With the plea, prosecutors can dispose of weeks of arcane and potentially confusing testimony by other witnesses about accounting issues that were at the heart of their case against Causey. For their part, defense lawyers must now prepare to cross-examine a man who strategized side-by-side with them, for years maintaining his innocence.
U.S. District Judge Simeon T. Lake III delayed the trial by two weeks to Jan. 30, based on a defense request, which cited the need to prepare for Causey's possible testimony and to retool their cases because of the plea deal. Causey's defense lawyers, Reid H. Weingarten and Mark J. Hulkower, had been scheduled to take the lead in questioning several important government witnesses on behalf of the defense, including the company's former chief financial officer Andrew S. Fastow.
The plea agreement described in broad strokes the assistance Causey can provide. The deal does not require him to help the government, but it holds out the promise of a two-year reduction in his prison sentence in exchange for full and truthful cooperation. Prosecutors said in court yesterday that they were in the process of debriefing Causey and did not commit to putting him on the witness stand in the upcoming trial.
Causey, along with unnamed "members of senior management," repeatedly misled investors about Enron's financial performance, according to the plea deal. The document cites two examples of Causey's failure to disclose key facts between January 2000 and May 2001, including an effort to hide losses in the Enron Energy Services retail unit by merging its operations with the healthier wholesale division. Skilling is charged with similar conduct, along with nearly three dozen other counts.
At a minimum, Causey may be able to help prosecutors corroborate testimony by Fastow, who until the Causey plea had been expected to be the government's star witness at the upcoming fraud trial. Defense lawyers have repeatedly called Fastow a liar and a thief because of admissions that he siphoned $60 million from Enron using secretive business partnerships. Fastow pleaded guilty to two criminal charges in exchange for a 10-year sentence.
By contrast, Causey reaped far fewer rewards in his 11 years at Enron. The plea agreement yesterday required him to forfeit about $1.25 million that already had been frozen by the government.
The deal with Causey comes after a week of intense negotiations between his Washington-based lawyers and the government task force led by Assistant U.S. Attorney Sean M. Berkowitz.
"For the rest of his life, he will regret the damage and hurt so many suffered from the Enron tragedy," Hulkower said yesterday.
Causey had rejected previous government offers. But as the trial approached, and the defense gained access to several incriminating statements about Causey by key witnesses, taking his case to a jury looked like an increasingly long shot, experts said. Causey also risked Lay and Skilling pointing the finger at him during the trial, as the only defendant with accounting expertise.
"There are some hands you play, and there are some hands you don't," Weingarten said.
Prosecutors had been set to produce a document known as the "global galactic" memo, in which Causey and Fastow allegedly agreed in writing that Fastow's partnerships would never lose money in their dealings with Enron. If it existed, such a deal would clearly violate securities laws.
Causey could be a difficult witness for both sides. With yesterday's plea deal, he admitted to failing to tell investors about hundreds of millions of dollars in losses that would have cast doubt on Enron's financial condition -- facts harmful to the defense.
But he has told close friends that his accounting decisions at Enron complied with all the rules and the law -- an assertion that could call into question facets of the prosecution's case.
Yesterday Lay's defense lawyer Michael Ramsey told reporters that Lay "can understand and sympathize with a man with a family, who is broke, making peace with the government."
Defense lawyers in the obstruction of justice case against Arthur Andersen LLP painted accountant and star witness David B. Duncan as a man pressured to admit wrongdoing to spare pain and financial hardship on his family, an issue that jurors in that case later said influenced them to disregard his testimony.
"It'll be a very interesting day," said Daniel M. Petrocelli, lead lawyer for Skilling, of Causey's possible turn on the witness stand. "I'm not sure at the end of the day how good a witness he will be for the government."
The plea leaves just two men sitting at the defense table for what has been called the most remarkable corporate fraud trial in a generation. Lay and Skilling are unlikely to resolve the charges against them short of a jury verdict, experts say.
"There's nothing the government can offer them, and there's nothing they would take," Philip Hilder, a Houston lawyer who represents several witnesses in the case, said of the company's former leaders. "This matter is headed for an absolutely certain collision course."
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