French Bank Agrees to Plead Guilty
French bank Credit Lyonnais and the French government have agreed to plead guilty to criminal charges and pay $575 million in connection with the bank’s allegedly fraudulent purchase of California’s Executive Life Insurance Co. in 1993.
Consortium de Realisation, a French government-owned corporation formed in 1995 to bail out the Paris-based bank, said Tuesday that it had “reached an agreement in principle with the United States attorney’s office in Los Angeles.” Officials at Credit Lyonnais had no comment.
Thom Mrozek, a spokesman for the U.S. attorney’s office in Los Angeles, said there was “a settlement in principle” and that it would “likely be several weeks before it is finalized.” He added, “We are not making any comment beyond that.”
Details of the plea agreement were sketchy. It wasn’t clear whether it included a fraud charge or whether Credit Lyonnais would admit only to lesser violations of federal banking regulations, including making false statements to government authorities.
But sources close to the negotiations said the deal included a provision that a sizable portion of the $575 million the defendants would pay would be put into escrow and held for California Executive Life policyholders, in the event that California Insurance Commissioner John Garamendi prevailed in a lawsuit on their behalf.
Consortium de Realisation and Credit Lyonnais are among about 20 businesses and individuals named in a sealed indictment handed down this year. The plea agreement doesn’t involve all of the defendants, according to a source familiar with the matter.
Credit Lyonnais had sought to avoid pleading guilty to fraud, an admission that would help the policyholders’ case in the Garamendi suit. It seeks $4 billion in compensation for losses they incurred when Los Angeles-based Executive Life was sold for $3.2 billion.
Beyond the lawsuit, Credit Lyonnais’ U.S. banking license hangs in the balance.
In the midst of a merger with a French competitor, Credit Lyonnais had fought to craft a deal that would allow the new institution to do business in the United States.
Federal Reserve Chairman Alan Greenspan said last week that Credit Lyonnais may face regulatory penalties if found to have broken the law.
Garamendi seized Executive Life in 1991, after determining that a drop in the value of its junk bond holdings left it insolvent.
He sold it to a group of French investors who made the winning bid in an auction.
Five years later, a whistle-blower claimed that the investors were fronts that hid Executive Life’s acquisition by Credit Lyonnais.
At the time, foreign banks were prohibited by state and federal laws from owning insurance companies.
In a statement, Consortium de Realisation said that it and the bank “are pleased to have resolved the criminal investigation” and that they “will continue in related civil litigation to defend vigorously allegations that their actions harmed Executive Life policyholders.”
George J. Terwilliger, a lawyer representing Consortium de Realisation and Credit Lyonnais, said the defendants maintained that even if the alleged concealment of the bank as the buyer was proved, it wouldn’t follow that the bank was liable for policyholders’ losses.
