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Lay defense blames machine in bank fraud case

/ Source: The Associated Press

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.

Conviction on each charge carries a maximum 30-year prison term. Lake has said he’ll deliver his verdict in the case after jurors render verdicts in the fraud and conspiracy case.

In testimony Thursday, Sally Ballard, Lay’s executive administrative assistant who paid bills for Lay and his wife and transferred funds among his many accounts, described Lay as an active manager of his accounts. She acknowledged using the automatic signature machine when Lay was out of town or unavailable, but said she never used it without his permission.

James Shelton, who from 1993 to 1998 was Lay’s private banker at what is now Bank of America, said he advised Lay about the 50-percent rule and that Lay was surprised he couldn’t use up to 75 percent of the loan for stock purchases.

A loan agreement initially was scrapped because of the restrictions, Shelton said.

Lay, however, ultimately obtained two lines of credit, one of them for stock purchases, and signed documents agreeing to the regulations, according to evidence. It was then that Carroll raised the question whether his signatures could be authenticated as original.

Under cross-examination, Shelton said he often mailed or had documents delivered to Lay and didn’t personally see Lay sign them.

Another government witness, Robert Hanisee, who oversaw Lay’s investments at a Los Angeles-based management firm where Lay was on the board of directors, said he considered Lay a sophisticated investor who made all the decisions on his investments.

The banking case originally was part of the July 2004 conspiracy indictment against Lay. But Lake, ruling in October 2004 on a request by Lay to have his entire case heard separately from Skilling, said only that the four counts would be tried separately.