Blog: Spirit of Money, Financial Fluidity
by munificent

Enron's exCFO to help Prosecutors

35-40 years in jail, well, one becomes more cooperative, no?

Date:   12/29/2005 8:43:55 AM   ( 16 y ) ... viewed 1498 times

HOUSTON, Dec. 28 - The former chief accounting officer of Enron agreed on Wednesday to cooperate with the government in its case against the two leading executives in the scandal over the company's collapse, significantly shifting the dynamics of a trial that is scheduled to start late next month.

Dave Einsel/Getty Images
Richard A. Causey, a former top Enron accountant, arriving Wednesday at the Houston courthouse where he pleaded guilty to fraud.
In exchange for a guilty plea to a single felony charge of securities fraud and for help in prosecuting Kenneth L. Lay and Jeffrey K. Skilling, both former chief executives at Enron, the accounting officer, Richard A. Causey, will face a sentence of seven years. That sentence could be reduced by as much as two years, depending on his cooperation at the trial. Mr. Causey did not specifically agree to testify, leaving open that possibility as the trial gets under way.

After Mr. Causey entered his plea, Judge Sim Lake of the Federal District Court here accepted a motion by defense lawyers to delay the start of the trial of Mr. Lay and Mr. Skilling to Jan. 30 to give the defense more time to prepare. Originally, Mr. Causey was to have gone on trial with them on Jan. 17. Mr. Causey also agreed to pay a $1.25 million fine out of financial assets that were frozen since his legal troubles began.

"Guilty, your honor," Mr. Causey said in court, occasionally looking down at the floor, as he softly responded to Judge Lake's questions as to whether he deceived investors. Mr. Causey, 45, declined to comment further on his plea as he exited the courtroom accompanied by lawyers and his wife, who was sobbing.

"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," Reid H. Weingarten, Mr. Causey's lawyer, said outside the courthouse.

The defense will seek to limit the damage that Mr. Causey could inflict as a witness for the prosecution by arguing that portions of his testimony are derived from the knowledge he obtained as a joint defendant and thus should not be allowed. "He was a man we worked side-by-side, shoulder-by-shoulder with for months," said Michael Ramsey, a lawyer for Mr. Lay.

Indeed, lawyers for the defendants quickly sought to discredit Mr. Causey's plea agreement, claiming it resulted from desperation over the depletion of his finances and concern over what might potentially be a lengthy sentence. Daniel Petrocelli, the lead trial lawyer for Mr. Skilling, said federal prosecutors "broke an innocent man."

The deal that Mr. Causey and his lawyer reached with prosecutors is more generous than the agreement prosecutors reached with Andrew S. Fastow, the former chief financial officer of Enron, who faces 10 years in prison after agreeing to plead guilty. Mr. Causey first spoke to prosecutors about a plea deal about a year ago, but those discussions stalled until about a week ago, lawyers in the case said.

"Typically, the deals get worse over time, not better," said Robert A. Mintz, a former prosecutor who is now with McCarter & English and is not involved in the case.

The indication that federal prosecutors are still willing to strike a fairly reasonable plea deal, lawyers not involved in the case said, is a sign that they are still weaving a web around the defendants. It suggests that there is no limit to the number of insiders they are willing to bring on board to try to ensure a conviction of Mr. Lay and Mr. Skilling, by far the most prominent figures involved with Enron's collapse.

In Mr. Causey, prosecutors obtained access to another top former Enron executive who was involved in high-level discussions of numerous off-balance-sheet transactions and creative accounting entries that led to the company's downfall.

For instance, Mr. Causey was one of two participants in an Oct. 21, 2001, meeting with Mr. Lay that is the basis of one of the seven charges against Mr. Lay. At that time, Enron was nearing internal disarray as investors began to lose confidence in its accounting practices.

Enron filed for bankruptcy protection in early December of that year, setting off its rapid disintegration and the loss of about 4,000 jobs.

For Mr. Causey, who had previously pleaded not guilty to more than 30 counts of fraud, conspiracy, insider trading and other charges, the deal guarantees him a much shorter stay in federal prison than he would have faced had he been convicted at trial. Mr. Causey faced the possibility of 35 to 40 years in prison without parole.

The deal also offers the possibility of an even shorter sentence if he performs ably, in the opinion of prosecutors, against his former bosses. He will be the 16th person with ties to Enron who has admitted in court to committing crimes. Judge Lake set formal sentencing for April 21, though he said that could be delayed.

"Every client has a different kind of mettle," said Marc Powers, a lawyer with Baker & Hostetler who represented Douglas Faneuil, a former stockbroker's assistant who cooperated in the government's case against Martha Stewart. "Some look at the situation and think: 'Yes, this is my Waterloo.' Others are more willing to roll the dice."

While potentially damaging for Mr. Skilling and Mr. Lay, Mr. Causey's plea deal could also form the basis of a renewed appeal by their lawyers for a change of venue. Mr. Ramsey, the lawyer for Mr. Lay, said he would ask Judge Lake next week to consider moving the trial outside of Houston, where many residents still have painful memories of Enron's collapse.

"Currently, we're finding that about 75 percent of potential jurors have anger or deep-seated hatred toward anyone associated with Enron," Mr. Ramsey said.

Judge Lake previously rejected motions to move the trial away from Houston; on Wednesday he showed reluctance even to delay the start of the trial by two weeks, saying, "It's been a long, difficult and expensive process for the taxpayers." Judge Lake chided lawyers on both sides, claiming that it did not take "a rocket scientist or a graduate of Texas A&M" to prepare for the trial.

But lawyers say the defense will have new grounds to ask for a change because people in the Houston area who have been notified that they could be jurors will be subject to renewed publicity about Mr. Causey and the case.

"It provides a reasonable basis to renew that motion and they may well do it," said Daniel R. Alonso, a former federal prosecutor who has followed the case but is not involved.

In a reflection of how the plea agreement might affect Mr. Skilling and Mr. Lay differently, Mr. Petrocelli, Mr. Skilling's lawyer, said the deal had significantly complicated preparations for the trial. He said that the two-week delay in its start was not sufficient time to construct a radically new strategy. By contrast, Mr. Ramsey, representing Mr. Lay, said the short delay was ample time for the defense.

That schism might indicate that Mr. Causey's plea agreement is potentially more damaging to Mr. Skilling. Whatever the balance, prosecutors made clear that they intended to do everything possible to encourage Mr. Causey to be fully cooperative in their efforts to build a stronger case against both men.

"The government is going to have to tread carefully through the minefield here in trying to extract useful and admissible evidence from Mr. Causey," said Mr. Mintz, the former prosecutor.

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