Lay's Second Trial Starts As First Jury Deliberates

By Carrie Johnson
Washington Post Staff Writer
Friday, May 19, 2006

HOUSTON, May 18 -- As jurors quietly deliberated conspiracy and false-statements charges against him Thursday, former Enron Corp. chairman Kenneth L. Lay endured the start of a separate trial on bank fraud violations that carry substantial prison time if he is convicted.

Lay, 64, stands accused of four criminal counts for allegedly lying to banks about how he would use multimillion-dollar lines of credit. Prosecutors accused the former corporate titan of falsely telling banks he would not use the loans to buy stock, then turning around and doing just that. Each charge carries a maximum prison term of 30 years.

Lay's alleged conduct violated Federal Reserve rules put in place after the 1929 stock market crash spurred policymakers to restrict how credit is used, prosecutor Robb Adkins argued.

"The process only works if the forms are filled out truthfully," Adkins said, pointing to "dozens and dozens" of instances when Lay signed documents pledging to follow the rules, then allegedly broke his promise.

Former Bank of America executive James Shelton, the relationship manager on Lay's account in the early 1990s, testified that the rules are important because the bank could be held liable if its clients violate the law -- and "I might very well lose my job." Shelton said he met with Lay several times to discuss the rule, known as Regulation U.

Because scores of documents exist, the key question in the case is whether Lay intended to violate the rules, an issue that prosecutors say is clear from his signature alone.

Lay's lawyers, who previously have scoffed at the charges as an overly zealous attempt to target their client, suggested a number of possible defenses, including the argument that his subordinates may have used a machine known as an "autopen" to affix his signature to several of the forms.

But U.S. District Judge Simeon T. Lake III, the ultimate decision maker in the bank case, inquired whether the distinction was a real difference. "Is there a distinction if he knowingly caused an employee to affix his signature electronically?" the judge asked, directing defense lawyers to produce prior court cases to support their assertion.

On cross-examination by Lay attorney Ken Carroll, Shelton said he did not believe Lay had engaged in a scheme to defraud the bank. He added that he had never done an investigation of how Lay was using the loans or developed any suspicions about them at the time.

Defense lawyer George "Mac" Secrest also suggested that Lay, who traveled frequently during his tenure at Enron, was too busy to have paid much attention to the forms. Instead, Secrest said, Lay simply signed where his staffers instructed him to do so. Sally Ballard, an employee of Lay's for 22 years who continues to work for his family part time, readily agreed.

Earlier Thursday, prosecutor John C. Hueston presented a pair of memos Ballard had written to Lay in November 1995 indicating that he was "technically bound by" the bank rules. The judge interjected with his own question, wondering whether the memos were delivered to Lay himself. Yes, Ballard answered.

Lake said he will render a decision on the bank fraud charges sometime after the eight-woman, four-man jury in the broader case decides whether Lay and former Enron chief executive Jeffrey K. Skilling are guilty of leading a conspiracy to defraud investors and employees about the energy trader's health. That case is the government's biggest and most heralded in an effort to hold corporate officials accountable for misconduct on their watch.

The jury broke for the day around 4 p.m. central time, after deliberating for six hours without sending a note or other tangible evidence of their progress. Jurors will return to their deliberations Monday, when the bank fraud case also will resume.

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