Wednesday, December 28, 2005

Bad News for Ken Lay and Jeff Skilling

Rick Causey won't stand up for Ken Lay, and he won't stand in the docket with him either.
As former chief accounting officer of Enron, Rick Causey was in the loop for structuring the notorious special purpose entities (LJM I, LJM II, the Raptors) used to hide billions of off balance sheet debt. He prepared the quarterly reports that kept Enron's stock elevated despite the hidden losses. He was the guy who browbeat the accountants at Arthur Andersen into submission. He prepped Ken Lay and Jeff Skilling for board meetings and conference calls with the Wall Street analysts. He was scheduled to go on trial with Lay and Skilling on January 17.

Today, Kurt Eichenwald reports in the New York Times that Causey has agreed to plead guilty in a deal that will likely mean his testimony against Lay and Skilling:
Corporate records and other documents establish that Mr. Causey engaged in frequent conversations with Mr. Lay and Mr. Skilling about accounting decisions at Enron, the former energy giant. Indeed, Mr. Causey was one of two participants in an Oct. 12, 2001, meeting with Mr. Lay that forms the basis for one charge against the former Enron chairman. With his legal liability established through a plea agreement, Mr. Causey could now be compelled to testify about his recollection of that meeting and other events.
If, as expected, Lay and Skilling plan to argue that Enron was a sound business that suffered a "run on the bank" crisis in investor confidence, then Causey will be able to set the record straight. As Bethany McLean and Peter Elkind write in The Smartest Guys in the Room, Lay has little basis for saying he was kept in the dark:
In truth, none of what [Sherron] Watkins told him [Key Lay] should have come as a surprise. He had personally approved the waiver on [CFO Andrew] Fastow's conflicts to let him run the LJMs; the Raptors had gone before both Lay and the entire board; their growing credit deficiencies were reported on daily position reports, distributed to scores of executives at Enron, and the restructuring had disclosed in Enron's SEC filings.
Kurt Eichenwald himself has written an exhaustive account of the Enron debacle, Conspiracy of Fools; the index has more than 100 citations under Causey's name.


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