HOUSTON – Former top Enron accountant Richard Causey on Wednesday struck a plea deal with federal prosecutors that could strengthen the government's case against company founder Kenneth Lay and former CEO Jeffrey Skilling for their role in the 2001 collapse of the power-trading giant.
Causey, who pleaded guilty to securities fraud, will serve seven years in prison and forfeit $1.25 million to the government. If the government is happy with his cooperation, prosecutors may ask that his sentence be reduced to five years.
U.S. District Judge Sim Lake postponed the start of the trial to Jan. 30 from Jan. 17 after Causey's plea, at the defense's request.
Lay, Skilling and Causey were scheduled to be tried together on conspiracy, fraud and other charges. The deal leaves Lay and Skilling with another opponent rather than an ally who has been part of their united defense front since the trio was indicted last year.
Causey pleaded guilty to count 19 of the superseding indictment in the case. In the 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 report for the first quarter of 2001. Enron imploded in late 2001 amid disclosures of complicated financing schemes that gave the appearance of success.
"Did you knowingly deceive the investing public?" Lake 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." He appeared relaxed throughout the hearing and before it began winked and smiled at his wife, who wept after it was all over.
"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," Causey attorney Reid Weingarten told reporters outside the federal courthouse in downtown Houston.
"He was poised to be a very key part of the defense. He is one of the most honest and decent men you can ever get to know," Skilling lawyer Daniel Petrocelli said outside court. "They broke an innocent man," he said, referring to pressure from prosecutors.
Causey, 45, could be more damaging to Lay and Skilling than former finance chief Andrew Fastow. Unlike his former peer, Causey didn't skim millions of dollars for himself from shady deals. Also, Lay has repeatedly pointed to Fastow as the crook who abused his trust, highlighting the former finance chief's admitted skullduggery.
"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."
Enron, once the seventh-largest company in the country, crumbled into bankruptcy in December 2001 upon revelations of hidden debt and inflated profits that sent investors running and obliterated Wall Street confidence. Thousands of workers lost their jobs and investors lost billions of dollars in the first of a string of corporate scandals that prompted stiffer white-collar penalties and more rigorous regulatory scrutiny.
Causey was indicted about a week after Fastow cut a deal with prosecutors and agreed to help the government pursue former top Enron executives.
Skilling was added to the indictment in February 2004, followed by Lay five months later.
Skilling and Lay maintain that they neither committed nor knew of any crimes at Enron, and both have pleaded not guilty.
Causey was one of many Enron accountants who once worked for the energy company's former auditing firm, Arthur Andersen LLP. He joined Enron in 1991 and was named chief accounting officer in 1999.
He was fired in February 2002 when an internal probe concluded he failed to adequately protect Enron's interests in deals with partnerships run by Fastow.
Reuters and the Associated Press contributed to this report.