Tourney and cash game rules are different, as are house rules from place to place. Typically though, it's ok to lie about your hand. It's only a problem if you tell someone the truth about your hand. Go figure.
In a situation like this though - down to Heads Up in a cash game hand, it was perfectly fine for this guy to say what he said, which is exactly what I would have done, btw. I wouldn't have stated my hand, but I would have said, "Well, I know you can't be at two pair" and pushed in on him.
The guy who bet with the King, btw... that was a HORRIBLE bet unless he though his opponent was incompetent. Anyone with half a brain would know to raise him there.
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