Wed Dec 28, 2005 04:04 PM ET
By Jeff Franks

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

Causey had been scheduled to face trial next month with former Enron chief executives Ken Lay and Jeff Skilling, but now is likely to cooperate with federal prosecutors against his former bosses as part of his plea bargain.

With Causey's plea, about 20 former Enron executives have now either been convicted of, or accepted responsibility for, 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," said Reid Weingarten, an attorney for Causey, in a statement outside of a courthouse.

Causey pleaded guilty to count 19 of the superseding indictment. Counts 14 through 20 charge Causey and Skilling with securities fraud in relation to the filing of financial statements; count 19 specifically deals with the filing of the company's quarterly report for the first quarter of 2001. He also agreed to forfeit $1.25 million.

"Did you knowingly deceive the investing public?" the judge 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."

Whether he will testify in the trial of Lay and Skilling is uncertain, but his deal with prosecutors calls for them to request a seven-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.

OFF-THE-BOOKS DEALS
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 and could have gone to jail for life if convicted. Skilling and Lay will face 35 and 11 criminal counts, respectively.

Causey's sudden switch from a key member of the defense to a potential star witness for the prosecution could throw off the legal strategy for Skilling and Lay and force a delay in the trial now scheduled to start January 17 before Judge Lake.
"We have all been working closely together to present a single defense, so if Mr. Causey is not with us we will have to substantially regroup," Skilling attorney Daniel Petrocelli told the Houston Chronicle. He said he would ask Lake to delay the trial for up to two months.

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."
Reuters