Pinault Denies Bank Pull in Deal
Billionaire Francois Pinault insisted in a Los Angeles court Wednesday that a French bank had no control over any of his companies when he acquired a California insurer that inherited much of the business of the failed Executive Life Insurance Co.
“I was the boss, and I am to this day,” Pinault testified while being cross-examined by attorney Gary Fontana, the state’s lawyer in a lawsuit targeting Pinault and Artemis, his holding company.
The state Department of Insurance alleges that Pinault’s purchase of about $2 billion in high-risk corporate bonds once held by Executive Life was part of a scheme to conceal a deal that allegedly gave the bank, Credit Lyonnais, control of Executive Life in 1991.
Insurance Commissioner John Garamendi contends that he never would have approved the complex arrangement had he been aware of the alleged fraud. The Executive Life purchase, he argues, violated state law that prevented foreign governments from controlling a state-licensed insurer. It also broke a federal law in force at the time that prohibited banks, such as Credit Lyonnais, from owning insurance companies, Garamendi said.
Credit Lyonnais was owned by the French government when Pinault bought Executive Life’s junk bond portfolio in late 1992 and the insurance company’s successor, Aurora National Life Assurance Co., in 1994.
Earlier in his testimony, Pinault said he wanted to buy the junk bonds from Credit Lyonnais subsidiary Altus Finance in 1992 so that he could diversify his holdings and provide an investment foothold in the United States.
During questioning Wednesday, Fontana displayed documents filed with the state by Artemis in 1994 requesting approval of a change of ownership at Aurora. The papers, signed under penalty of perjury by Pinault, were checked “No” in boxes asking whether any foreign government-controlled entity had the authority to appoint company officers or directors.
During questioning, Pinault acknowledged that Altus, then controlled by the French government, had the right to appoint one member of the Artemis board and two directors at its parent, Financiere Pinault.
Pinault countered that the Credit Lyonnais directors had no real authority, and that his team of executives made all decisions.
Throughout his testimony in U.S. District Court, Pinault repeatedly said he had broken no laws. Asked by defense attorney James Clark on Tuesday if he had conspired to mislead California regulators, Pinault responded through a court translator, “No. Never.”
Most of the original parties named as defendants in the lawsuit, including Credit Lyonnais, reached a $600-million out-of-court settlement in February.
In 2003, Artemis agreed to pay $185 million toward a policyholder fund and $500,000 to reimburse the U.S. government as part of a plea deal with the U.S. attorney in Los Angeles. The company and Pinault also agreed to cooperate with U.S. prosecutors’ investigation and were not charged.
Executive Life had 330,000 policyholders when California took it over in 1991. Fontana, the private counsel hired by the state, has estimated total policyholder losses at $4 billion to $4.5 billion.
