Enron's Lay Says He Broke Bank Rules

By Carrie Johnson
Washington Post Staff Writer
Tuesday, May 23, 2006

HOUSTON, May 22 -- A regretful Kenneth L. Lay conceded he broke technical rules related to bank loans, but the former Enron Corp. chairman testified that the violations were an inadvertent result of his commitment to the energy company.

Lay, 64, took the witness stand for 45 minutes Monday as the central witness in a trial about whether he lied and defrauded banks when he used loans to buy nearly $20 million in stock, a violation of arcane Federal Reserve rules.

"I guess what I'm really saying is, I regret I didn't have a lot more time to spend on my personal matters, and I guess this is one of the consequences of that," Lay said.

Where he was forceful and combative in six days on the witness stand in the broader fraud and conspiracy trial against him, Lay adopted a more conciliatory tone in his bank fraud case. He talked about moving to Houston with $10,000 in college loans and only enough possessions to fit in his car trunk. He also directly addressed U.S. District Judge Simeon T. Lake III at least three times, as the judge, who will rule on the bank fraud case without a jury, looked back at him.

Under questions from lawyer Ken Carroll, Lay all but admitted "we did not fully comply" with the rules when he signed scores of loan documents, promissory notes and other papers. Lay also backed away from assertions that, because his employees sometimes affixed his signature using a machine called an autopen, he lacked the intent to commit a crime. Instead, Lay said, his lawyers were "misunderstood" when they asked government witnesses about the device last week.

Even as he made concessions, however, Lay said he would never have broken the rules "had I known what the facts were." He painted himself as an executive with little time to manage his personal finances, meeting with banker James Shelton fewer than a dozen times for a maximum of 15 minutes each, when he would sign documents without reading them. Lay added that he relied on lawyers and others before completing the forms.

Because federal prosecutors introduced the documents, the key issue in the case is what was in Lay's head at the time. He testified Monday that he learned for the first time that he had broken bank loan rules with his July 2004 indictment.

Last week, prosecutors introduced memos Lay's assistant wrote him in November 1995, putting him on notice of the rules. Lay has argued that prosecutions under Regulation U are unusual and highly technical, telling his lawyer Monday that "it seems like every time we meet, you've got to refresh my memory on all these terms."

Earlier in the day, defense lawyer George "Mac" Secrest told the judge that prosecutors were "trying to turn a regulatory infraction into a serious federal criminal offense."

Lay faces a maximum of 30 years in prison on the four bank charges if convicted, but because he repaid the loans, a more likely sentence ranges between zero and six months, Justice Department spokeswoman Samantha Martin said. Lake denied defense motions to dismiss three bank charges and asked the prosecution to prepare a memo on the fourth after expressing some skepticism about it. The bank case could end Tuesday.

Meanwhile, jurors in the broader trial against Lay and his former protege, Jeffrey K. Skilling, ended a second full day of deliberations Monday. Shortly before they departed, the eight-woman, four-man jury requested extra speakers so they could better hear audio and video exhibits from the four-month-long trial.


© 2006 The Washington Post Company