Credit Lyonnais May Settle Over Acquisition
French bank Credit Lyonnais is negotiating with the Justice Department to pay as much as $600 million to avoid criminal indictment in connection with its allegedly fraudulent acquisition of California’s failed Executive Life Insurance Co., several sources close to the matter said Wednesday.
The negotiations have been going on for some time, one government source said, but weren’t near conclusion and could end without a deal.
California Insurance Commissioner John Garamendi seized Los Angeles-based Executive Life in 1991, declared it insolvent and sold it for $3.2 billion at auction to what was apparently a consortium of French investors. The U.S. attorney’s office in Los Angeles later launched a criminal investigation after a whistle-blower claimed that front companies had concealed the true purchaser -- Credit Lyonnais.
At the time, state and federal laws barred foreign banks from owning insurance companies.
Los Angeles prosecutors asked the Justice Department for permission to indict the bank on fraud-related charges more than two years ago. Last fall, the House Government Reform Committee held a hearing to examine why charges hadn’t been brought.
Several members of California’s congressional delegation have urged the Justice Department to act. Lawmakers are concerned about the difficulties faced by Executive Life policyholders, some of them elderly and disabled, who have seen their monthly annuity payments slashed by half or more in the wake of the debacle.
Christopher Wray, acting head of the Justice Department’s criminal division in Washington, declined to comment, as did a spokesman for the U.S. attorney’s office. George Terwilliger, the Washington lawyer representing Credit Lyonnais, couldn’t be reached.
It was unclear whether the possible deal under discussion would require Credit Lyonnais to enter a plea to any criminal charges.
Such a plea probably would help Garamendi’s civil suit against the bank, said San Francisco lawyer Gary Fontana, who represents the insurance commissioner on behalf of former Executive Life policyholders.
The suit seeks $2.54 billion -- the amount of profit the bank is alleged to have made on its sale of Executive Life’s assets. The assets included high-risk junk bonds, which had a face value of $6 billion. If the commissioner wins the suit, he could demand that Credit Lyonnais pay a decade’s worth of interest at 10% annually on damages.
“The commissioner is confident we are going to prevail in the civil case whether or not there is a guilty plea in the criminal case,” Fontana said. “We’ve got so much evidence that they made these false statements, that they were deliberately done and that they covered it up for years. The only thing that’s holding up the final result in our case is a trial date.”
Fontana said Credit Lyonnais has not sought a settlement in the suit.
It is uncertain what effect a deal with the Justice Department would have on Credit Lyonnais’ U.S. banking license. The Federal Reserve also has an investigation pending in the Executive Life deal. Credit Lyonnais is being acquired by Credit Agricole, another French bank, and Sen. Barbara Boxer (D-Calif.) last week sent a letter to Federal Reserve Chairman Alan Greenspan urging the board to scrutinize the merger in light of the fraud allegations.
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Times staff writer Richard B. Schmitt in Washington contributed to this report.
