NEW YORK (AP) _ Princeton-Newport Partners LP engaged in a series of securities trades in 1984 and 1985 to generate short-term capital losses for tax purposes, but the deals were legal, the defunct firm's chief partner says.

Testifying in his own defense, Princeton-Newport former managing partner James Sutton Regan also said he was unaware of a separate stock deal involving Drexel Burnham Lambert Inc. that the government has included in the securities fraud and racketeering case.

''I did not commit a crime. I did not cheat on my taxes. I did not engage in a conspiracy. I am totally, 100 percent innocent,'' Regan said Monday under questioning from his attorney, Theodore Wells.

The government was expected to cross-examine Regan today.

Regan, one of six defendants in the case, testified that Princeton-Newport engaged in a series of ''tax trades'' in 1984 and 1985 to generate short-term capital losses it could claim as tax deductions. He said the trades were necessitated in part by changes in federal laws.

''It was my belief that the transactions were entirely legal, 100 percent legal,'' he said.

Regan, 47, speaking calmly and evenly as he explained various complex tax arrangements, described deals in which Princeton-Newport sold blocks of securities to other investment firms temporarily to claim losses for tax purposes.

The government alleges the deals were engineered to create false long-term capital gains and short-term capital losses for Princeton-Newport in violation of federal tax laws. The indictment last year alleged millions of dollars in bogus tax losses.

But Regan testified that he was aware of federal laws when he ordered the firm to conduct so-called ''day trades'' in 1984 in which it sold blocks of stock and bought them back the same day. He said all the trades were recorded in the company's books.

He said the transactions were subject to market fluctuation and no prearranged buyback price had been set.

The government alleges the trades were ''parking'' arrangements, in which securities owned by one party are sold to another with an agreement to repurchase, usually at a preset time and price. The government maintains that such deals are illegal if designed to skirt federal tax or disclosure laws.

He said he told Princeton-Newport general partner Paul A. Berkman to conduct other trades in early 1985 through Merrill Lynch & Co. and Drexel Burnham Lambert Inc.

Some of those trades involved asking Merrill and Drexel to hold stock in various companies for at least 31 days before Princeton-Newport could repurchase it, in accordance with federal laws, he said.

''This kind of tax planning was common all the time,'' he said. ''People would do anything possible to avoid long-term losses, anything legally possible.''

Regan denied any involvement in a deal cited in the indictment that former Drexel trader Bruce Lee Newberg told Princeton-Newport to sell blocks of stock in C.O.M.B. Co. to try to manipulate its share price downward in 1985.

''I had no knowledge of that transaction whatsoever,' he said.

In addition to Regan, Berkman and Newberg, on trial are Princeton-Newport general partners Charles Zarzecki and Jack Z. Rabinowitz, and the firm's controller, Steven B. Smotrich.

Princeton-Newport, a small securities firm with offices in Princeton, N.J., and Newport Beach, Calif., went out of business after the indictment was brought last August.