Federal Reserve Fines French Bank $100 Million

Credit Lyonnais will pay a record $100-million penalty to the U.S. Federal Reserve as part of the $771-million resolution of the criminal investigation stemming from the French bank’s fraudulent acquisition of Executive Life Insurance Co., officials announced Thursday.

Credit Lyonnais is expected to retain its lucrative U.S. banking license.

Separately, an advocate for Executive Life policyholders who claim they lost billions in the scheme criticized the immunity deal obtained by the French businessman who made nearly $1 billion off the failed insurer. “The U.S. attorney left half the money on the table by not indicting Francois Pinault,” Maureen Marr said. “Their loss as of 1991 was so huge -- $4 billion -- that each $100 million of settlement only accounts for 1% of their policy values.”

Declared insolvent in 1991, Executive Life was sold at auction two years later to investors who turned out to be fronts for Credit Lyonnais, which was then owned by the French government. The sale violated a U.S. ban on foreign banks owning insurers.

Last week, the French government and Credit Lyonnais agreed to plead guilty and pay the lion’s share of penalties. Six others, including two former bank chairmen, failed to reach plea bargains and were hit with a new 23-count fraud indictment. An earlier indictment naming all the parties except Pinault remains sealed.

Prosecutors defended their decision to grant Pinault immunity, saying they made the deal three years ago when he offered valuable inside information. Still, Pinault’s Artemis holding company agreed to pay $185 million, and prosecutors dropped plans to seek Artemis’ forfeiture of its $260-million stake in the rehabilitated insurance company.

“He’s not buying his way out,” Assistant U.S. Atty. Jeffrey Isaacs said of Pinault. “He did serve as a cooperative witness, which is sometimes what it takes in a case like this.”

U.S. Atty. Debra Yang said the pleas, penalties and indictments should serve as a deterrent to those who would take advantage of the global marketplace. “We will follow fraud no matter the obstacles, no matter the geographic boundaries,” she said.

State Insurance Commissioner John Garamendi said the guilty pleas should help his lawsuit to force French defendants to fork over all the allegedly tainted profits, which have been estimated at up to $2.5 billion.

The deal does not allow Garamendi any shortcuts in proving his case for Pinault’s liability -- a point not lost on Artemis.

“Neither Artemis nor any related entity or individual has been charged with any criminal offenses,” the company said. “Artemis is confident that the company will prevail in the civil suit.”

Pending a judge’s approval, the agreement would allow prosecutors to share certain evidence. It also requires that $560 million be set aside to pay off any future judgments.