Sparring again with prosecutor John Hueston, Enron Corp. founder Kenneth Lay insisted he was not trying to do anything improper when he failed to comply with federal rules covering the use of bank loans by buying stocks with the money.
"Mr. Hueston, I know you find this very strange, but Regulation U was not something I carried around with me all the time," Lay said, referring to a Depression-era federal law at issue in his bank fraud case. "The regulation is not something I carried around in my hip pocket."
Hueston and Lay, who clashed for days in cross-examination at the main fraud and conspiracy trial now being considered by a jury, confronted each other for only about an hour Tuesday in the trial where Lay is accused of one criminal charge of bank fraud and three of making false statements.
The defense rested after Lay's testimony and prosecutors said they would call two brief rebuttal witnesses.
U.S. District Judge Sim Lake, who is hearing the three-day case without a jury, anticipated closing arguments later Tuesday.
Lake, however, will not release his verdict in the case until a jury finishes its deliberations in the main case involving Lay and former Enron Chief Executive Jeffrey Skilling. The jury in that case, where Lay faces six charges and Skilling 28, including insider trading, was deliberating Tuesday for a fourth day.
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 or mutual funds. The federal rules governing use of loans for stock sales were covered in documents Lay signed.
His personal banker testified earlier the rules were spelled out to Lay.
Lay said he was trying to get maximum flexibility and the best interest rates and "trying to be the good consumer" when he was negotiating loans or expanding their lines of credit.
"I was not intending through any period of time to violate these regulations as I understood them," Lay said. "Today I understand this a lot better than I did previously."
Lay said in many cases, bankers came to him to get his business and the agreements were discussed by bank representatives and people working on his behalf.
Hueston reminded Lay: "You were the one calling the shots."
"I'm not trying to shift responsibility," Lay replied.
The prosecutor also told Lay that banks gave him tens of millions of dollars, "relying on your personal representations as a precondition."
"We clearly made mistakes here," Lay responded. "We clearly were in noncompliance. And I'm sorry about that.
"I can't go back and undo it. But there never was any intent to defraud or mislead anyone."
He also acknowledged referring to the rules, approved in the wake of the 1929 stock market crash, as old, arcane law.
"I've been told I'm the first customer of a bank to be indicted over that," Lay said. "It's hard to argue it's not an old law.
"It doesn't mean I wouldn't comply with it if I understood it."
Conviction on each of the four charges carries up to a 30-year prison term.
The counts against Lay were part of the main fraud and conspiracy case against him and Skilling. But Lake, ruling in October 2004 on a request by Lay to have his case heard separately, agreed only that the four banking counts would be heard alone.