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The government’s case against Kenneth Lay and Jeffrey Skilling, the two senior former Enron executives, received a boost on Wednesday after Richard Causey, the group’s chief accountant, pleaded guilty to securities fraud and agreed to testify against his ex-bosses.
The judge presiding over the case delayed the trial’s start to January 30 after Mr Causey changed his decision to present a joint defence with Mr Lay and Mr Skilling. The case had been due to begin on January 17.
Daniel Alonso, a former government criminal attorney, and now a partner with Kaye Scholer, said: “This sounds like bad news for Lay and Skilling…If Causey had no relevant information which could incriminate Lay or Skilling, it is unlikely the government would have entered into a deal with him.”
Mr Causey pleaded not guilty to 36 criminal charges nearly two years ago after the collapse in 2001 of the Houston-based energy trading company following revelations of complex financing schemes that hid huge debts and inflated profits.
Enron’s bankruptcy was the first in a string of corporate scandals that led to significant regulatory changes for companies and much tougher penalties against white-collar crime.
So far, the government’s attempts to punish Enron executives have been unsuccessful, with a case against five former executives in effect ending in a mistrial earlier this year.
The government has had more success in other cases, securing a conviction of Bernie Ebbers, the former head of WorldCom, who in July was sentenced to 25 years in prison.
Mr Causey’s decision comes just weeks before the scheduled start of the trial against him and Mr Lay, Enron’s founder, and Mr Skilling, its former chief
Mr Skilling faces 35 counts of fraud, conspiracy, lying to auditors and insider trading. Mr Lay will be tried on seven fraud and conspiracy counts.
The three had presented a united defence and said they neither committed nor knew of any crimes at Enron.
Mr Causey on Wednesday agreed to serve seven years in prison and forfeit $1.25m to the government.
If the government is happy with his co-operation, prosecutors can ask that his sentence be reduced to five years. Andrew Fastow, who shared the chief accountant role with Mr Causey, last year pleaded guilty to two counts of conspiracy and agreed to serve a 10-year jail sentence.Some lawyers said Mr Causey – the 16th former Enron executive to help the government – could be a more important witness in the case against Mr Lay and Mr Skilling because Mr Fastow’s credibility was affected by the fact that he diverted millions of dollars from Enron for his own use.