Prosecutors and attorneys for Enron Corp.'s former chief accounting officer, Richard Causey, are in negotiations on a plea bargain on the eve of trial for founder Kenneth L. Lay and former CEO Jeffrey K. Skilling, according to people familiar with the discussions.
If Causey agrees to a deal to plead guilty, his cooperation could prove enormously helpful to the government's case against Lay and Skilling. All three are scheduled for trial next month.
The discussions are continuing, and there is no guarantee that any agreement will be reached, according to two people familiar with the talks, confirming recent published reports. They spoke on the condition of anonymity because of the private nature of the talks. The process could crumble before the fraud and conspiracy trial begins with jury selection Jan. 17.
Any deal with Causey, 45, could provide prosecutors with a potentially devastating witness against Lay and Skilling - even more so than assistance from former finance chief Andrew S. Fastow, who pleaded guilty in January 2004 to two counts of conspiracy.
Fifteen other former Enron executives have pleaded guilty to crimes, including securities fraud and insider trading. Causey, Lay and Skilling have pleaded not guilty.
"Causey's defection essentially on the eve of trial would be a huge blow to Skilling and Lay," Robert Mintz, a former federal prosecutor, said yesterday. "A last-minute deal for Causey would signal weakness precisely at the time that these defendants are trying to project strength."
Sean Berkowitz, head of the Justice Department's Enron Task Force, declined to comment. Reid Weingarten, one of Causey's lawyers, didn't respond to requests for comment.
Daniel Petrocelli, Skilling's lead trial lawyer, defended Causey.
"Rick Causey doesn't have a criminal bone in his body," Petrocelli said.
Lay's lead attorney, Michael Ramsey, was skeptical whether a plea deal could be reached.
"I don't think he's going to say that he's guilty of something he's not, so I don't think the deal's going to make it," Ramsey said. "That's based on talking to the guy many times. I just think he's honest."
Enron crashed in December 2001 upon revelations of hidden debt and inflated profits, leaving thousands out of work and roiling Wall Street with billions in investor losses.
Causey, Skilling and Lay are accused of conspiring to fool investors into believing a wobbly Enron was healthy.
The 34 charges against Causey include fraud, conspiracy, lying to auditors, money laundering and insider trading. The people who confirmed the plea talks couldn't say to which of those counts he might plead guilty.
Most of Causey's charges overlap with the 35 counts of fraud, conspiracy, insider trading and lying to auditors pending against Skilling, which stem from allegations of approving false or misleading financial statements and regulatory filings. Several of Causey's charges also overlap with the seven fraud and conspiracy counts against Lay regarding alleged efforts to convince analysts and credit rating agencies that Enron was strong in the months before it collapsed.
The indictment alleges schemes behind misleading financial statements that included inflated asset values, hidden debt, sham asset sales, use of energy-trading profits to make the company's money-losing energy retail unit appear healthy, and faking earnings in Enron's sickly broadband unit.
In his plea nearly two years ago, Fastow admitted that he and others manipulated publicly reported financial results to mislead investors, boost the company's stock and maintain creditworthiness. Fastow also admitted skimming millions of dollars for himself and others at Enron's expense.
Causey is accused of being "a principal architect" of schemes to mislead investors, manipulate earnings and pocket millions from sales of inflated stock. Unlike Fastow, he wasn't accused of siphoning money for himself from shady deals.
"Causey will be much tougher to discredit if he jumps ship and testifies for the government," Mintz said. "He was the numbers guy. Presumably he has information about Skilling and Lay that no one else can provide."
Prosecutors also allege that Causey forged a written agreement with Fastow that promised profits to Fastow's partnerships from deals with Enron.
Causey was fired in February 2002 after an internal investigation concluded that he failed to adequately protect Enron's interests when the company entered deals with Fastow-run partnerships. Causey and Fastow split financial duties at Enron and were at the same management level.
The charges against Causey came just a week after Fastow pleaded guilty and promised to help prosecutors seek indictments of other top executives.
Skilling was added to the indictment in February 2004, followed by Lay five months later.
Lay is charged in a separate case with bank fraud and lying to banks about his intention to use loans to buy stock on margin.
Causey was one of many Enron executives who joined the energy giant after working for its former outside auditor, Arthur Andersen LLP. He started at Enron in 1991 as assistant controller and became chief accounting officer in 1999.
Causey has been free on $1 million bail since he was indicted. At that time, Mark Hulkower, one of Causey's attorneys, said he was a "decent, honorable and innocent man" who "has done nothing, absolutely nothing, wrong."