Ashcroft Pressed to Prosecute French Bank
California’s attorney general and insurance commissioner are urging U.S. Atty. Gen. John Ashcroft to pursue criminal charges against Credit Lyonnais, amid signs that the French bank may be near an accord to avoid indictment for its allegedly fraudulent purchase of the failed Executive Life Insurance Co.
The bank, which was partially controlled by the French government at the time, is accused in lawsuits of hiding behind front businesses to illegally acquire the assets of Executive Life in 1993, making a profit of at least $2 billion. Federal law at that time barred banks from owning insurance companies. A separate California law still on the books prohibits foreign ownership of insurers.
Justice Department officials are weighing the year-old recommendation of the U.S. attorney in Los Angeles that the bank and its affiliates be indicted on fraud, conspiracy and other charges. The bank’s license to operate in the U.S. also hangs in the balance.
The Justice Department has refused to comment, and Credit Lyonnais has denied reports in the French press that a deal is in the works that would allow the bank to avoid criminal indictment in lieu of a fine of $50 million to $100 million.
Such a deal would amount to a “slap on the wrist,” California Atty. Gen. Bill Lockyer and Insurance Commissioner Harry Low wrote in a letter sent to Ashcroft late Wednesday. “We disagree with any such settlement.”
Lockyer and Low are pursuing separate lawsuits against the bank and its French affiliates seeking more than $2 billion in damages on behalf of 330,000 policyholders.
Legal sources familiar with the case said Thursday that the Justice Department appears to be nearing a deal to resolve the investigation after weeks of meetings between lawyers for the Justice Department and Credit Lyonnais.
The two sides are considering a deal that would include a fine against the bank of up to $100 million and criminal charges against at least one senior executive--but not the bank itself, according to a lawyer familiar with the case who asked not to be identified.
An official close to Credit Lyonnais who asked not to be identified said, “There’s no deal.”
George Terwilliger, a prominent Washington attorney representing the bank, declined to comment on the status of the negotiations. But he accused Lockyer and Low of putting pressure on the Justice Department to “rescue their own floundering civil claims.”
“California sees an opportunity to enrich itself at the expense of the taxpayers of France,” said Terwilliger.
Terwilliger said Credit Lyonnais did nothing wrong. Policyholders were victimized not by Credit Lyonnais, he said, but by failed regulatory policies that allowed the previous owners to invest excessively in junk bonds and “drive them to ruin.”
“The United States has never prosecuted a rehabilitated U.S. bank for crimes committed by the management prior to rehabilitation, because such a prosecution puts at risk the great public investment that has been made in the rescue,” he said. “Why punish an institution that isn’t really the wrongdoer? What good is accomplished from that?”
But in their letter to Ashcroft, Lockyer and Low suggested that federal prosecutors and the FBI have obtained evidence they believe would “undermine the arguments made by Credit Lyonnais and the bank’s American lobbyists that the bank’s current management has rehabilitated the bank.”
The question of what to do with the Credit Lyonnais probe has provoked heated debate within the Justice Department for months, fueled by the political sensitivities surrounding the case. Department officials have assured Democrats in Congress, fearful of a watered-down settlement, that they will decide the case based on a careful, fair evaluation. But prosecutors have been unwilling to discuss their deliberations in detail. The Justice Department refused comment Thursday on the case or on the letter from Lockyer and Low.
Former Executive Life policyholders allege they have suffered more than $4 billion in losses and have asked Ashcroft for a meeting. California Reps. Nancy Pelosi (D-San Francisco) and Howard L. Berman (D-Mission Hills) sent a letter last week urging Ashcroft to listen to the policyholders and share evidence with state investigators.
Girion reported from Los Angeles and Lichtblau from Washington.
