Ex-Enron exec pleads guilty
Causey's deal with prosecutors will complicate defense for ex-Enron chairman Lay, ex-CEO Skilling.
NEW YORK (CNNMoney.com) - Former Enron accounting chief Richard Causey's guilty plea to securities fraud Wednesday for his role in the financial scandal that drove the energy company into bankruptcy in 2001 is being hailed as a big win for the government in their case against former top executives at Enron.
Causey is expected to cooperate with prosecutors seeking convictions of his former bosses, Enron founder Ken Lay and ex-CEO Jeff Skilling, who face charges of fraud and conspiracy from the scandal that rocked corporate America in 2001. The two men were due to go on trial with Causey next month in Houston.
Causey, who had been facing multiple counts of conspiracy and fraud charges, entered his plea before a federal judge overseeing the case in Houston.
Prosecutors said Causey pleaded guilty to one count of securities fraud and will get seven years in prison under the plea deal -- which could be reduced to five years in exchange for cooperation in the prosecution of Lay and Skilling.
His eleventh-hour plea agreement could tip the scales in favor of the prosecution by providing prosecutors with an additional corroborating witness against the defendants.
"Causey has long been the keys to the kingdom because he's the most important person in the Enron saga in terms of knowing who knew and who didn't know," said a source familiar with the case. "The government has been trying to get him to plead guilty long before anyone was even indicted. It's a huge win."
Speaking to reporters in Houston, Causey's attorney Reid Weingarten said Causey "will tell the truth" about his actions at Enron, though he didn't specify what evidence his client might provide against Lay and Skilling. Still, there is widespread expectation that Causey will testify against his former bosses and corroborate the testimony of Enron's former chief financial officer, Andrew Fastow.
Bolstering a shaky witness
Fastow pleaded guilty to two counts of wire and securities fraud last year and was sentenced to 10 years in prison in return for his expected testimony.
Long considered the star witness for the government, Fastow's credibility has come under attack in recent weeks after newly unsealed documents in the case showed the former CFO denied being involved in a tax conspiracy with his wife.
Despite the earlier denials, his wife, Lea Fastow, later pleaded guilty in the tax case while Andrew pleaded to other charges and agreed to testify against his former bosses -- all of which could undermine his effectiveness as a witness.
"Fastow might not make the most sympathetic or believable witness because he lined his pockets and his personality" may turn off jurors, said former prosecutor Kirby Behre, now a partner at Paul Hastings.
But legal experts said Causey, who has until now been a low profile player in the Enron scandal and has not been accused of personally profiting from any misdeeds, may prove to be a more likeable witness by a jury.
And as the chief accountant of the company, Causey ultimately devised the methods to justify the creative accounting to its independent auditors and his testimony could make it difficult for the defense to refute Fastow's statements on the stand.
Lay in the hot seat
Causey's plea agreement could put Lay in the hot seat, if the former accounting chief offers testimony implicating the former chairman. Since his indictment a year ago, Lay has mounted an aggressive defense in public and in the courtroom, denying any knowledge of wrongdoing within the company.
Specifically the government is looking for a witness that can account for Lay's actions between August 2001 – when Skilling stepped down as CEO – until November of that year, according to the source familiar with the case.
"What's missing is someone who reported directly to Lay during that period of time and can tell whether Lay knew things were going bad and yet still wasn't telling the market," he said. "Causey is the person who could do that."
Attorneys for the remaining two defendants, however, said they remained confident that both Skilling and Lay would be vindicated despite Causey's plea agreement.
"There was no criminal activity at Enron other than what happened with Fastow and those that secretly worked with him," said Daniel Petrocelli, an attorney for Skilling. "Even though people pled guilty, it will be difficult for them to rewrite history."
Lay's attorney Michael Ramsey added that Causey decided to plead guilty to a crime he didn't commit because he didn't have the money to defend himself in a drawn out legal battle and wanted to avoid the possibility of a 35 to 40 year prison term.
"It's a sad day for due process," he said.
The defense attorneys added that if Causey were to testify for the government, they expect his testimony could back up their assertions that there was no blatant fraud perpetrated by the defendants.
Skilling and Lay, who are facing fraud and conspiracy charges, maintain they did nothing wrong and had no knowledge of any crimes at Enron. Both men have pleaded not guilty and their attorneys said they wouldn't consider a plea agreement.
Legal experts said that Causey's testimony could, in fact, help the defense poke holes into Fastow's testimony.
"Anytime you get two people to tell the same story, there are always opportunities for differences and inconsistencies that the defense can exploit," said Barry Boss, a former public defender and managing partner of the Washington D.C. office of Cozen O'Connor.
One for the books
Regardless of the outcome, the Enron case will certainly leave a mark. JoAnne Epps, a professor of law at Temple University's Beasley School of Law, said the Enron case will be a definitive moment in American history because of its widespread implications.
Enron filed for bankruptcy in December 2001 after investigators found it had used partnerships to conceal more than $1 billion in debt and inflate profits. The bankruptcy filing by the company, once the country's seventh largest, cost 4,000 employees their jobs and life savings, and led to billions of dollars of losses for investors.
The Houston-based company's collapse was the first of many high-profile scandals that rocked WorldCom, Global Crossing, Adelphia Communications and Tyco International. The wave of fraud led to passage of the Sarbanes-Oxley legislation meant to tighten oversight of how American companies are audited.