State Sues Over Failure of Exec Life : Insurance: Regulators say Michael Milken and former officials and associates of the firm were responsible for its collapse. The suit seeks billions in damages.

California insurance regulators Thursday accused former officials and associates of failed Executive Life Insurance Co. of fraud in a multibillion-dollar lawsuit that seeks reimbursement of losses for policyholders.

The suit accuses Fred Carr, the former chief executive of Executive Life, and Michael Milken, the convicted Drexel Burnham Lambert junk bond trader, of fraud, misrepresentation, breach of fiduciary duty and other wrongdoing that led to the firm’s collapse in April.

The suit, initiated by Insurance Commissioner John Garamendi in Los Angeles Superior Court, also names as defendants Deloitte & Touche, the accounting firm, and three major insurance rating services--A. M. Best Co., Moody’s Investors Service and Standard & Poor’s.

While the suit does not specify damages, Garamendi said he is seeking the return of all losses suffered by Executive Life policyholders, plus interest and punitive damages. The losses alone are now estimated at $3 billion.

“Today’s lawsuit names the names and cites the deeds of those who we believe looted this company, and allowed it to be looted, at the expense of policyholders,” Garamendi said at a press conference.

The suit mirrors similar civil cases already filed by former investors in First Executive Corp., the Los Angeles-based parent of Executive Life. It alleges that Carr directed the filing of false and misleading statements that masked the company’s true financial picture through accounting gimmickry and bogus transactions.

The company also engaged in deceptive advertising practices designed to attract new customers--and keep established policyholders--with assurances that their funds were safe, the suit charges.

The suit charges Milken with sucking Executive Life into his “vast intertwined financial network” that created a ready market for Drexel’s risky junk bonds. Milken is now serving a federal prison sentence for securities fraud.

In the suit, Deloitte & Touche is accused of recklessly disregarding evidence that would have revealed the tenuous nature of the insurer’s finances. After giving Executive Life a clean bill of health, the partner in charge of Executive Life’s audit was hired by the insurer in a job that earned him $500,000 annually, the suit alleges. The suit says the rating services gave Executive Life excellent marks, even though they had “access to confidential, inside information about Executive Life that belied the ratings” they gave to Executive Life, the complaint says.

A Standard & Poor’s spokeswoman said the allegations against the agency are without merit.

Other parties named in the suit either didn’t return phone calls, refused to comment or could not be reached.