The former chief accountant at Enron Corp. surrendered to authorities in Houston yesterday to face federal criminal charges that he served as an “architect” of a wide-ranging scheme to manipulate the company’s earnings and improperly boost its stock price.
Richard A. Causey, 44, was indicted on five counts of securities fraud and one count of conspiracy. He faces up to 55 years in prison if he is convicted. Separately, the Securities and Exchange Commission sued Causey for fraud and demanded unspecified financial penalties. Causey made at least $5 million on stock sales between 1999 and 2001 and earned more than $3 million in salary and bonuses in that time, the indictment said.
Causey and his co-conspirators “used some of the most sophisticated tricks in the corporate fraud playbook to con the public into believing that Enron was a success,” Deputy Attorney General Jim Comey said in a prepared statement.
After pleading not guilty at a brief hearing, Causey was released on $1 million bond. His defense lawyer, Reid H. Weingarten, said Causey “is a totally honorable man who was trying his best to make sure unbelievably complex business transactions” followed accounting rules.
Causey, who reported to former Enron chief executive Jeffrey K. Skilling, has refused overtures over the past several months to cooperate with prosecutors. Even without Causey’s help, investigators are increasingly confident they will be able to build a case against Enron’s top executives, based on a broad theory that the nation’s seventh-biggest company was, in fact, a house of cards.
The indictment alleges that Enron executives doctored its books since at least since 1999, taking relatively simple steps, such as overvaluing assets and improperly using cash reserves. They also allegedly used more sophisticated outside business partnerships to bury debt and create phony earnings.
Federal prosecutors continue to investigate what Skilling and former Enron chairman Kenneth L. Lay knew about the company’s deteriorating finances at the same time they made optimistic public statements about Enron’s health. Charges against Skilling could come within weeks, according to two sources close to the case.
The company collapsed into bankruptcy in December 2001, just months after Skilling and Lay repeatedly assured analysts in conference calls and meetings that the energy firm’s outlook was bright. In charging Causey, prosecutors cited “false and misleading” information presented by Enron managers during analyst calls and conferences but did not specifically name Skilling or Lay. Neither man has been charged with wrongdoing, and both have said their decisions were made with advice from lawyers, accountants and board members.
Justice Department and SEC investigators secured a key break in their complex investigation this month when Enron’s former chief financial officer, Andrew S. Fastow, pleaded guilty to conspiracy. Fastow told the government he and Causey had an improper, secret agreement that allowed one of Fastow’s business partnerships to profit at Enron’s expense, according to his plea agreement. Highlighting facets of deals that were hidden from auditors and lawyers could help prosecutors poke holes in any defense mounted by Causey, Skilling and Lay that they relied on expert judgments about the legitimacy of the transactions, said former prosecutor Robert A. Mintz.
The indictment puts Causey at the center of a plan to use accounting gimmicks to help Enron’s operating units produce smooth and steady profits. Causey took part in meetings where budget targets were set and “gaps” in the company’s actual earnings and its goals were discussed, according to court papers. Enron’s financial problems were hidden from auditors, lenders and credit rating agencies, as well as the SEC, prosecutors said.
“Instead of being a gatekeeper, Causey was a conspirator,” said Linda C. Thomsen, deputy director of the SEC’s enforcement division. “Instead of defending the interests of Enron investors, he was defrauding them.”
As the years went on, Enron grew increasingly desperate to hit its quarterly targets, the government contends. In the summer of 2000, Causey and Fastow allegedly agreed that one of Fastow’s business partnerships would make an $11 million profit in its dealings with Enron. In exchange, the partnership would be used to help “manipulate” Enron’s balance sheet, the indictment said.
That charge builds on agreements the government signed last year with former Enron executives David W. Delainey and Wesley H. Colwell. Both men admitted to inflating the value of one of Enron’s biggest assets, Mariner Energy Inc., by more than $100 million to plug a hole in Enron’s budget. Delainey also said Skilling took part in a plan to reorganize the company’s business units and alter the way it reported financial data in the first quarter of 2001, Skilling’s first as Enron’s chief executive, according to court documents and sources familiar with the case. The change helped conceal severe problems in the Enron Energy Services retail unit by shifting losses to another division.
Testimony from Delainey, Colwell and other Enron subordinates will be important in a Causey trial, since Fastow’s statements on their own could be vulnerable to attack by defense lawyers.
Causey’s lawyer signaled yesterday that he would attack the accounting rules themselves, calling them “sometimes vague, loose and counterintuitive.”