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Garamendi’s 1991 Seizure of Executive Life Criticized

TIMES STAFF WRITER

Mel Fuchs, a Newport Beach real estate broker, used to go out of his way to boost John Garamendi.

He gave Garamendi $750 in his race for insurance commissioner, and even traveled to Garamendi’s ranch near the tiny Sacramento-San Joaquin River Delta town of Thornton for Garamendi’s annual barbecue and fund-raiser in 1991.

But not anymore. Fuchs soured on Garamendi when, four months after taking office in 1991, the insurance commissioner declared Executive Life Insurance Co. insolvent and seized it.

“He’s a very good-looking guy, very nice,” Fuchs said. “Got all the attributes and ego to be President of the United States, and that’s what he’s going for.”

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Executive Life was among the state’s largest life insurance companies. It also was among the largest single investors in high-risk junk bonds sold by Michael Milken and his defunct Drexel, Burnham, Lambert. When the junk bond market collapsed in 1989, Executive Life posted huge losses.

In November, 1991, Garamendi sold the remnants of Executive Life to a group that included a former partner at Drexel, Burnham and the French bank, Credit Lyonnais, for $3.5 billion.

As it turned out, the deal was a boon for the new owners. In a March cover story critical of Garamendi’s handling of Executive Life, Forbes magazine estimated Executive Life’s portfolio has appreciated by $2 billion.

Garamendi defends his decisions. Neither he nor anyone else could have anticipated that the junk bond market would rebound, he said.

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“The decisions we made were applauded at that time by Mel (Fuchs) and others,” Garamendi said. Garamendi said 90% of the more than 330,000 policyholders got or will get all of their money--a figure hotly disputed by many policyholders.

Fuchs, 73, is among those whose benefits were cut by half. He had hoped to use his life insurance policy with Executive Life for retirement and thought it would be worth $1 million. In the end, he said, he will end up with what he put in, about $500,000.

“The whole thing stinks,” Fuchs said. “But I’m the lucky one. Others lost everything. It’s a horror story what happened to the people. They’re older people. They can’t get insurance any more.”

Another who lost was Wallace Albertson, a West Los Angeles Democratic activist who had annuities managed by Executive Life. Albertson enlisted Maureen Marr, a political and consumer activist, to take up the policyholders’ cause.

Marr combed Garamendi’s campaign finance reports, and found more than $100,000 in donations to Garamendi since 1991 from law offices, accountants and other experts hired by the Department of Insurance to oversee the seizure and sale of Executive Life, and related litigation--a figure confirmed by a Times review of the records.

Court records show that those firms have received $94 million in fees in the Executive Life case. The money came from the assets of the insurance company. Albertson and Marr contend that much of that money should go to the policyholders.

“I was curious to see if there was a financial motivation for his actions,” Marr said, explaining why she undertook the laborious task. “Whether it’s $1,000 or $100,000, these kinds of associations are pretty outrageous.”

Elena Stern, Garamendi’s spokeswoman, said campaign donations had nothing to do with the decision to hire experts in the Executive Life case. “The relationships were established based on expertise and experience in the area of conservation and liquidations of insurance companies.”

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