U.S. Hints
Ex-Enron Accounting Chief Had Role in Fraud
By David Barboza
NY Times, October 4, 2002
Richard A. Causey, the former chief accounting officer at the Enron
Corporation, never really fit into his company's aggressive corporate
culture.
Former executives said he was a respected accountant, but co-workers
referred to him as the "Pillsbury doughboy." He was pleasant and
kind, and loved little more than playing golf with his accounting buddies
from Arthur Andersen and going to University of Texas football games.
But yesterday, the Justice Department suggested that Mr. Causey — fired
from Enron in February — played a crucial role in an unfolding case of
corporate fraud at Enron.
Mr. Causey, 42, was not charged with any crime. And he was not
specifically named in the criminal complaint against Andrew S. Fastow,
Enron's former chief financial officer, who was charged yesterday with
profiting from helping manipulate Enron's financial statements over the last
few years.
But the complaint said that the company's chief accounting officer made
false representations to Enron's board about dealings with a pair of
off-balance-sheet partnerships called LJM1 and LJM2, which Mr. Fastow
controlled.
The complaint also says that the chief accounting officer — a position
Mr. Causey held from 1997 to 2001 — struck a secret agreement with Mr.
Fastow promising that Enron would ensure that LJM did not lose money on its
deals with Enron. That sort of agreement would have violated accounting
rules and helped defraud Enron of millions of dollars.
Legal experts say the complaint puts pressure on Mr. Causey and other
former Enron executives. "That was a not so subtle message to Mr.
Causey to sit down with prosecutors and make a deal," said Robert Mintz,
a former prosecutor.
Mr. Causey, who invoked his Fifth Amendment right against
self-incrimination in February during Congressional hearings, has declined
all requests for interviews.
Reid Weingarten, a lawyer for Mr. Causey, said his client had committed
no crime. "Rick Causey is an utterly decent and honorable man,"
Mr. Weingarten said, "who never believed for one instant that he was
violating the law or accounting standards."
Still, people who worked with Mr. Causey say he is in a difficult
position. He was the chief accounting officer at a company that is now
embroiled in one of the worst accounting scandals in decades. And he was
said to have specialized in off- balance-sheet deals, which are at the
center of the Enron scandal.
For much of the last year, accounting experts and Congressional
investigators have said Enron did not just bend the rules — it repeatedly
broke them to inflate profits and hide billions in debt with off-the-books
partnerships.
The Powers Report, a review sought by Enron's board, concluded the
company used creative efforts to circumvent the rules. It also faulted Mr.
Causey. "He presided over and participated in a series of accounting
judgments that, based on the accounting advice we have received, went well
beyond the aggressive," the report said. "The fact that these
judgments were, in most if not all cases, made with the concurrence of
Andersen is a significant though not entirely exonerating fact."
The report also said that Mr. Causey did not properly perform his duty to
review and approve LJM deals to make sure they were fair to Enron.
In interview notes released by lawyers working on the Powers Report, Mr.
Causey appeared to admit to having detailed knowledge of the accounting for
many of the partnership deals. But he also indicated that he did not pay
close attention to many LJM transactions.
Former co-workers said that he was well liked within the company but that
he did not have the courage to stand up to executives.
"He was under a lot of pressure and he often gave in," said one
former Enron executive whom federal investigators have interviewed.
Other executives called Mr. Causey the consummate professional, a
stickler for accounting detail.
He started his career at Arthur Andersen in the 1980's after graduating
from the University of Texas. He worked in Houston auditing the Enron
account before Enron hired him in 1991 to work for Jeffrey K. Skilling, who
was then head of the company's trading and finance unit and later became
chief executive.
At Enron, he worked on the accounting for some of the company's early
off-balance-sheet partnerships, like Cactus and the Joint Energy Development
Investments L.P., according to former executives who worked with him.
He was named a vice president in 1992, then led a treasury group in 1996,
after Mr. Fastow was sent to retail energy. When Mr. Fastow returned several
months later, Mr. Causey moved to retail to handle accounting matters.
But in December 1996, Mr. Skilling was named the company's president, and
he asked Mr. Causey to become chief accounting officer.
Former employees describe Mr. Causey as friendly and unpretentious and as
someone who did not travel in the same circles as other top executives. He
lived far north of Houston, not in the city's exclusive River Oaks
neighborhood, where other high-level executives had large homes.
And his stock sales seem modest — only about $13 million over the last
three years — compared with those of former executives like Lou Pai, who
sold more than $150 million of stock during that period.
Mr. Causey was also a kind of peacemaker at a company where business
units often went to war with one another, former executives said.
"When people started fighting," this person said, "Causey
would say, `Come on. We've all made enough money here. We're already making
a lot more than we should.' "
According to former executives, Mr. Causey was not particularly close to
Mr. Fastow. But the chief accounting officer at Enron often handled duties
generally set aside for a chief financial officer.
"He was doing stuff a C.F.O. would typically be doing," said
Bala Dharan, a professor of accounting at Rice University in Houston.
"Usually, the chief accounting officer simply implements things, puts
the numbers in place. He was helping them do the deals."
Because partnerships were so important to Enron in recent years, Mr.
Fastow and Mr. Causey had to work together, since Mr. Fastow is not an
accountant. The Powers Report says the two worked on a number of deals
involving LJM, sometimes with Mr. Fastow negotiating for LJM and Mr. Causey
for Enron.
Mr. Fastow also proposed to Enron's board that Mr. Causey review deals
between the companies. Mr. Skilling and others were also supposed to be part
of the reviews.
The Powers report says Mr. Causey did not neglect his duties but defined
them narrowly, and he failed to inform the board properly.
J. C. Nickens, a lawyer for Mr. Causey, suggested that the Powers
Report's criticism of Mr. Causey's accounting practices was unfair and that
he had not been supposed to patrol LJM deals.
The Justice Department complaint yesterday also criticized his duties
related to LJM. But federal officials also suggested that because the chief
accounting officer had a secret agreement — referred to as the Global
Galatic agreement — he may have helped defraud Enron.
Some former Enron executives, however, question the accuracy of the
information since they recall that Mr. Fastow and Mr. Causey worked with one
another but did not appear to be personally close.
One former executive who worked in the finance department with the men
said Mr. Causey had constantly been under pressure in LJM transactions.
"Enron was such a tough place to work," the former executive said.
"Causey was a nice guy, but he did not like to fight; he was not a
bully. And he felt his job was not to say no, but to make it work."
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