Lay Defense Blames Auto Signature Machine

Enron founder Kenneth Lay leaves the federal courthouse in Houston, Thursday, May 18, 2006, at the end of the day. As 12 jurors began their first full day of deliberations in a fraud and conspiracy case against him, Lay was in court at a new trial in a separate case where he's accused of fraud stemming from his personal banking. (AP Photo/Ric Feld) (Ric Feld - AP)

HOUSTON -- The automated signature machine did it. Attorneys for Kenneth Lay suggested bank loan documents containing terms he allegedly violated actually were signed by an automatic signature device in the Enron Corp. founder's office and not by him.

Lay went on trial Thursday on one count of bank fraud and three counts of making false statements regarding personal banking issues.

The trial, expected to wrap up as early as Tuesday, got under way the day after jurors began deliberating the nearly four-month-long fraud and conspiracy case of Lay and former Enron Chief Executive Jeffrey Skilling. Lay is charged with six counts in that case, Skilling with 28.

Prosecutors allege that beginning in 1999, Lay obtained $75 million in loans from three banks _ Bank of America, Chase Bank of Texas and Compass Bank _ and then reneged on an agreement with the lenders that he wouldn't use the money to carry or buy stock. Under federal rules adopted after the 1929 stock market crash, only 50 percent of a loan can be used to buy margin stock, generally defined as a stock listed on a national securities exchange and most mutual funds.

Lay used his Enron stock as collateral for the loans. Lenders issued margin calls as Enron's share price fell throughout 2001, which he said prompted him to tap the company for cash and repay the energy giant with Enron stock.

Lay signed documents agreeing to the 50-percent rule, but wasn't satisfied and "repeatedly time and again, over a period of years," drew down on the loans to buy stock "he promised he would not purchase from these lines of credit," prosecutor Robb Adkins said.

One of Lay's lawyers, Ken Carroll, said many of the documents may have been signed by the machine that had templates with the signatures of Lay and his wife, Linda, and that Lay's assistants would have used the machine "if somebody sends him a pile of bank documents and had to be signed in order to get a loan done."

When U.S. District Judge Sim Lake, who is hearing the case without a jury, asked Carroll if there's a distinction to be made if the signatures were made electronically, Carroll responded that while it could be a civil or regulatory matter, "It's not a crime."

Carroll also said Lay had no motive to violate rules, had collateral to back up the loans and even paid them off.

"If somebody told him he wasn't doing the right thing with these lines (of credit), he would have fixed them," Carroll said in response to a question from Lake, who expressed confusion with questioning by Lay's lawyers and inquired about the direction of the defense.

Carroll had declined to make an opening statement Thursday, reserving the opportunity to do so later.

Unlike the marathon fraud and conspiracy trial, this case is expected to be quick. While there are no court proceedings on Friday, prosecutors said they expected to wrap up Monday morning. Lay's lawyers said they planned to call three witnesses, including Lay, and could be finished Tuesday.