Lay: Rule violation was not intended

Section: Money, Pg. 03b

HOUSTON -- Jury deliberations continued Monday in the government's trial of former Enron CEOs Ken Lay and Jeff Skilling, even as Lay testified in a separate trial about whether he violated an obscure banking regulation forbidding him from using certain types of bank loans to purchase stock in publicly traded companies.

The jury in the corporate fraud trail -- in which Lay and Skilling are accused of conspiring in 2000 and 2001 to hide the true financial condition of Enron from investors -- has now deliberated quietly for two and a half days. The only request they made Monday came late in the afternoon, when they sent a note to U.S. District Judge Sim Lake asking for a pair of external speakers that could be connected to a laptop computer.

Much of the government's evidence against the two men consists of statements they made publicly before employees and stock analysts. Prosecutors played recordings of the statements, contending that specific assertions made by Lay and Skilling were lies that amounted to securities fraud.

Defense lawyers say the recordings of the statements, played in their entirety, demonstrate that Lay and Skilling provided complete information to their audiences. Jurors will be able to listen to as much or as little of the recordings as they want.

In the bank fraud trial, which is expected to wrap up today, prosecutors have accused Lay of violating Regulation U, an obscure rule adopted after the 1929 stock market crash. It states that when borrowers post stock as collateral for their loans, they are only allowed to use 50% of the loan to buy stock in publicly traded companies.

Prosecutors contend that Lay deceived several banks that wanted to lend to him by not disclosing that he was using most of the loans he received to buy stock in a variety of public companies.

When he took the stand in his own defense Monday, Lay appeared far more relaxed and controlled than he did a few weeks ago in the corporate fraud trial. Under questioning from his own attorney, Ken Carroll, Lay conceded that in retrospect, he had violated Regulation U. "We did not fully comply," he acknowledged.

But Lay said he wasn't familiar with the rule, and would never have violated it if he'd known its provisions. "I did not" intentionally violate the rule, he said, "and would not had I known the facts."

The bank fraud trial is being held without a jury in front of Lake. Although it should be concluded today, Lake said he would not render a decision until the jury has reached a verdict in the larger corporate fraud case.

(c) USA TODAY, 2006