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Causey Cops to Enron Fraud

Matthew Goldstein

The prosecutorial noose just got a little tighter around Kenneth Lay and Jeff Skilling.

Richard Causey, the former chief accounting officer for Enron, pleaded guilty to one count of securities fraud and agreed to cooperate with the ongoing investigation. Causey, who is facing up to seven years in prison and agreed to forfeit $1.25 million, pleaded guilty in a Houston federal courtroom.

Causey is expected to testify against Lay, Enron's former chairman, and Skilling, Enron's former president, at their upcoming criminal trial. Some legal experts say Causey could prove to be a more damaging witness than former Enron CFO Andrew Fastow because he was closer to both Lay and Skilling.

In his plea agreement, Causey said he "conspired with members of Enron's senior management to make false and misleading statements'' about Enron's true financial situation in order to inflate the company's stock.

Causey was scheduled to go on trial with Skilling and Lay next month. It's likely the trial, which will take place in a Houston federal courtroom, will be delayed a few weeks to give the defendants' lawyers time to consider the impact of the Causey plea.

In an earlier indictment, prosecutors charged that both Skilling and Causey knew by the fourth quarter of 1999 that Enron was not meeting its budget targets and that the company only appeared to be profitable because of the many schemes they and others concocted to juice reported earnings. The two men specifically were accused of concealing large losses in two of the company's divisions: Enron Broadband Services and Enron Energy Services.

Causey, in pleading guilty, admitted to doing much of what the government alleged, specifically with regard to Enron Energy Services, or EES.

"I and others in senior management made a decision to move the risk management function of EES into another business unit,'' Causey said in his plea agreement. "This reorganization allowed us to avoid reporting the losses in EES's results so that I and others in senior management could continue to tout EES as a growing and successful business.''

In earlier criminal proceedings, prosecutors alleged that Causey was privy to a secret side deal between Enron and the infamous LJM2 partnership, which was used to move billions of dollars of Enron debt off the company's balance sheet. The arrangement, called the "global galactic agreement," guaranteed that LJM2 would never lose money in its dealing with the former energy trading giant.

LJM2 was the brainchild of Fastow and raised nearly $500 million from a long list of wealthy investors, including a number of Wall Street firms.