As expected, former Enron chief accountant Richard Causey pled guilty Wednesday afternoon to a single count of securities fraud while agreeing to a prison sentence of seven years and a fine of $1.250 million.

Here are the Houston Chronicle, NY Times (Eichenwald’s here), W$J, and Washington Post articles on the plea deal.

As a result of the timing of Causey’s plea deal, U.S. District Judge Sim Lake postponed the commencement of the Lay-Skilling trial for two weeks to January 30, 2006.

In agreeing to the seven-year plea deal, the 45 year-old Causey took on the second-longest prison sentence of the 16 former Enron executives who have pled guilty to date under plea bargains, less only than former Enron CFO Andrew Fastow’s minimum ten year sentence. It’s a surprisingly long sentence given that Causey, unlike Fastow, did not peel tens of millions of dollars off of Enron and various special purpose entities for his own benefit.

Causey has two years’ worth of incentive to be a compelling Task Force witness against his co-defendants Ken Lay and Jeff Skilling because the only way that he can obtain a reduced sentence (to five years from seven) is if the Task Force, in its sole discretion, determines that Causey has been a good helper.

However, unlike most other former Enron executives who have copped pleas, Causey did not sign a cooperation agreement with the Task Force and thus, is not obligated to cooperate with the government. Even though he has two years’ worth of motivation to ingratiate himself to Task Force prosecutors, Causey cannot lose his plea deal if the Task Force finds that his assistance is not particularly helpful.

During its almost four year existence, the Task Force has been much more successful in bludgeoning plea bargains out of former Enron executives than in obtaining convictions of such executives at trial — only one former Enron executive (Dan Boyle in the Nigerian Barge case) has been convicted out of the seven former Enron executives who have defended themselves at trial against a Task Force prosecution.

Causey had been facing trial on an absurd 36 counts of conspiracy, fraud, insider trading, lying to auditors and money laundering, and also faced a potential, effective life sentence if convicted on all or most of the counts. The securities fraud charge that Causey pled to has a maximum prison sentence of 10 years.

Exhibit A to Causey’s plea agreement contains his specific admissions, which reflect that the Task Force is now focusing more on non-disclosure of material facts relating to Enron’s financial performance than the allegations of fraudulent accounting that permeate the indictment against Causey.

Nevertheless, it remains unclear to what extent, if any, Causey’s testimony will be used against Lay and Skilling in their upcoming trial.

Causey’s admissions on exhibit A are limited in nature and are based on the generic statement that he participated with “others in Enron senior management” to defraud the investing public by misleading them about the company’s true financial performance.

However, the affidavit only cites two examples, and they do not involve some of the broader accounting allegations related to Fastow’s SPE’s that have been the focus of the Task Force’s case against Causey and his co-defendants to date.

Similarly, the affidavit makes no reference to secret handshake deals involving alleged oral promises (undisclosed to Enron’s auditor) to pay back money provided by third parties such as the Task Force parlayed into convictions of Boyle and four former Merrill Lynch executives in the Nigerian Barge trial.

Surprisingly, Causey’s admissions involve one-time deals that do not, in and of themselves, reflect a management team that was — as the Task Force contends — engaged in a conspiracy to hide a house of cards from investors for several years before Enron’s bankruptcy.

In one instance, Causey admitted that he and other unnamed Enron executives removed a hedge from a partnership that Enron partly owned and which held Enron stock. Inasmuch as the Enron executives knew that positive news about Enron was about to push the value of the stock upward, the value of a related investment would go down if the hedge was still in place. Once the hedge was removed, Enron reported the stock price increase as recurring profits in the first quarter of 2000, which Causey now contends was improper.

The second Causey admission involves Enron’s retail electricity business, Enron Energy Services.

Causey admitted that EES — which he contends was an important promotional tool for Enron to investors — had hundreds of millions of dollars of unexpected first quarter of 2001 trading losses, which far exceeded the unit’s projected income for the year. In order to maintain the unit’s attractiveness as a promotional tool, Causey contends that Enron shifted the unit’s trading losses into a more profitable unit and thus, avoided direct reporting of the losses that might have chilled investor fervor for Enron.

Finally, inasmuch as Causey and his counsel have participated under a joint defense agreement with the Lay and Skilling defense teams for over two years now, virtually any of Causey’s testimony would be subject to challenge as being derived from that joint defense effort. Moreover, Causey had problems in defending himself against the charges that Lay and Skilling do not, and his credibility may be subject to impeachment at trial through portrayal of the eve-of-trial plea deal as an effort to save his skin at the expense of his co-defendants.

Thus, even though Causey’s plea is disconcerting for Lay and Skilling, it remains to be seen whether it really changes the dynamics of the government’s case against the two key former Enron executives.

As the Task Force debriefs Causey, the nature of his potential testimony will likely become better known over the next couple of weeks.

Meanwhile, in the lottery that has become the criminalization of business in this country, former Qwest Communications International Inc. executive Marc Weisberg agreed yesterday to plead guilty to a single count of wire fraud and will cooperate with prosecutors in Denver who have charged Qwest’s former chief executive, Joseph Nacchio, with insider trading.

Weisberg had been scheduled to begin trial next week on eleven counts of wire fraud and money laundering for allegedly abusing his position at Qwest for personal gain by using his access to shares of Qwest vendors’ initial public offerings to benefit himself, his friends and his family to the tune of approximately $3 million. As did Causey, Weisberg faced decades in prison if convicted on all those counts.

Weisberg’s deal?

Sixty days of home detention, two years probation, a fine of $250,000 and a two-year ban on him serving as an officer or director of a public company.

The Chronicle, the Wall Street Journal ($), the NY Times and the Washington Post began reporting last night that former Enron chief accountant Richard Causey will enter into a plea bargain with the Enron Task Force this afternoon in Houston federal court.

The plea deal hedges Causey’s risk of an effective life sentence if he were to stand trial and be found guilty on 36 criminal counts in the Task Force’s legacy case against Causey and his co-defendants, former Enron chairman Ken Lay and former CEO Jeff Skilling.

Although the initial news reports speculate that a key part of Causey’s plea deal will be his agreement to testify against Messrs. Lay and Skilling at trial, I’ll reserve judgment on the probable impact of such testimony until I’ve reviewed the terms of Causey’s cooperation agreement.

It is always troublesome for the other co-defendants to have one of their brethen cop a plea on the eve of trial, particularly when the plea bargaining co-defendant has been part of a joint defense agreement with the two other defendants and has participated in discussions both about his defense and the defenses of his co-defendants.

But Causey has always been the most likely of the three to cop a plea, both for financial and tactical reasons.

In fact, the latest Task Force initiative to pressure Causey into plea bargain negotiations began months ago in regard to Causey-approved accounting over a transaction called Coyote Springs that does not appear to involve either Lay nor Skilling. That pressure was reinforced earlier this month when the Task Force threatened more indictments over the Coyote Springs transaction. Ellen Podgor has additional thoughts on the possible reasons for the late timing of Causey’s plea deals.

On the tactical side, Causey was far more involved than either Lay or Skilling in the details of questionable accounting in regard to certain transactions between Enron and special purpose entities effectively run by former Enron CFO, Andrew Fastow.

An apparent “side” agreement between Causey and Fastow relating to those SPE’s that allegedly was not disclosed to Enron’s auditors has long been considered a key element in the Task Force’s case against Causey.

Lay and Skilling have both denied any knowledge of that Causey-Fastow side deal at the time they were running Enron.

Similarly, over the past couple of months, the Task Force has signaled a change of trial strategy that did not bode well for Causey, in particular.

The Task Force had previously demonized former Enron auditor Arthur Andersen, alleged in previous Enron-related prosecutions that a number of the firm’s former partners were co-conspirators with the defendants and prosecuted the firm out of business.

However, the Task Force recently embraced several former Andersen partners as prosecution witnesses in the upcoming trial against Lay, Skiling and Causey on the theory that Enron duped Andersen just like everyone else.

Inasmuch as Causey had primary responsibility for Enron’s accounting, that change in prosecution strategy impacted Causey more than either Lay or Skilling.

Finally, because the government froze his assets upon his indictment, Causey was not able to pay compensation to his criminal defense attorney (Reid Weingarten) that would normally be expected in a case of this size and complexity.

As a result, Causey’s defense team has been forced to ride the coattails of both Skilling and Lay’s defense teams in preparing for trial, which meant that, from a practical standpoint, the particular problems involved in defending Causey were not likely to be at the forefront of the defense effort.

Thus, it is not entirely clear that Causey will be a particularly effective witness on the core charges that the Task Force is pursuing against Lay and Skilling. We have already seen that the prior testimony of a key Enron executive under a plea bargain did not turn out well for the Enron Task Force in the Enron Broadband trial.

In fact, the plea could actually work to simplify the defense of the remaining two defendants by shifting the focus of the trial away from technical accounting issues over which neither Lay nor Skilling had primary responsibility.

Moreover, even if Causey ends up testifying as a prosecution witness against Lay and Skilling, the defense will be able to use the eve-of-trial timing of the plea deal and Causey’s previous protestations of innocence to impeach the credibility of any such testimony and to present Causey as a witness who — much like former Andersen partner David Duncan — copped a plea to hedge the risk of a long prison sentence even though he really does not think he is guilty of a crime.

Along those lines, the WaPo article on Causey’s plea deal includes the following from a neighbor of Causey:

For friends of Causey, including his next-door neighbor Steve Huey, word of the advanced plea negotiations is bittersweet. They say Causey is devoted to his three children, the youngest of whom is in eighth grade, and is a devout Catholic who helped raise funds for a new church in the Woodlands, an upscale suburb of Houston.

“I don’t think Rick has ever believed he did anything wrong,” said Huey, who shared a Christmas Eve dinner with Causey and his wife, Elizabeth. “I think that Rick’s concern is over the family and what the eventual outcome will be for the family. As you get closer to trial, you start to weigh the options and weigh the odds and the resources the federal government has.”

The most probable immediate impact of the plea deal is that the Lay and Skilling defense teams will request a delay of the beginning of the now-scheduled January 17, 2006 trial and renew their request that the trial be moved out of Houston.

Although the Lay and Skilling teams have already made a persuasive case that the trial should be moved out of Houston because of extraordinary pre-trial publicity and a Houston jury pool that is clearly biased against Lay and Skilling in regard to Enron-related matters, U.S. District Judge Sim Lake‘s previous rulings in the case indicate that he will decline to grant either a delay in the trial or a change of its venue.