Prosecution Wraps Up Lay Case
Enron Founder's Bank-Fraud Trial to Be Decided by Judge

By Carrie Johnson
Washington Post Staff Writer
Wednesday, May 24, 2006

HOUSTON, May 23 -- Prosecutors closed their bank-fraud case against former Enron Corp. chairman Kenneth L. Lay on Tuesday by painting him as a sophisticated executive who seems "constitutionally incapable of accepting responsibility" for lies to three banks.

In his second and final day on the witness stand, Lay, 64, told the judge that he mistakenly broke the federal rules because they "pretty well moved out of my memory bank" and said he "just wasn't paying as much attention to my personal finances as I should have."

Because Lay did not contest his signature on loans he used to buy stock in violation of Federal Reserve Board rules, the only issue in the three-day-long trial is whether Lay intended to deceive the lending institutions. He faces a maximum six-month prison term for each of the four charges -- one for bank fraud and three for false statements -- that he is battling.

In calm tones that were in marked contrast to his prickly demeanor during the government's broader fraud case against him, Lay said he never meant to run afoul of the rules and that, had he known about the problems, he would have remedied them. Lay added that he only breezed through agreements to borrow millions of dollars. "If I read in detail every document that came across my desk in any given day, I don't know how I could have done it," he said.

Defense lawyer George "Mac" Secrest drove home the point in a short closing argument to U.S. District Judge Simeon T. Lake III, who will decide the case without a jury. "Mr. Lay's flying at 35,000 feet," Secrest said. "He's got the big picture. He doesn't get into the details. . . . He relied on other folks to help out."

But prosecutors pointed to two memos from Lay's assistant to Lay in November 1995 that signaled that he was bound by the rule, known as Regulation U. Last week, a former bank executive testified that he told Lay about the regulations and that Lay initially balked at them.

Within a month of the 1995 memos, prosecutor John C. Hueston asserted, Lay "did exactly what you were advised not to do," paying off an Enron loan with a $3.6 million line of credit from Compass Bank. "So your consciousness about Regulation U ended 29 days after the memo?" the prosecutor said.

"Mr. Hueston, I know you find this very strange, but Regulation U was not something I carried with me all the time, thinking about what it was," Lay responded. "I'm not denying we were not fully in compliance. I just didn't understand it, and I don't think my staff did either."

Prosecutors contend that Lay was able to obtain an extra $27 million in borrowing power by misrepresenting how he would use loan proceeds. Lay, who had previously accused Hueston of misrepresenting facts, mostly kept his pique in check. But he took a few digs at the government, including a shot about furnishing prosecutors documents twice, "because they seem to have lost some of them the first time."

Defense lawyer Secrest once again criticized the government for bringing the bank case, which he called "virtually unprecedented in the annals of criminal law."

Lake interrupted the defense lawyer several times in the course of a 30-minute closing argument, once asking why Lay or one of his employees decided to "rely almost exclusively" on the forbidden lines of credit since the mid-1990s. "That almost presupposes he or they understood the difference," the judge said.

Justice Department Enron Task Force director Sean M. Berkowitz had the last word, telling the judge that "Mr. Lay did this for the worst possible reason: because he thought he could get away with it."

Meanwhile, the eight-woman, four-man jury in the broader trial against Lay and former protege Jeffrey K. Skilling ended a third full day of deliberations. The panel sent a note indicating that they would not meet on Friday or Monday, a sign that a verdict in the four-month-old case is not imminent.