Franco-American fraud case hits court after 13 years

15th February 2005, Comments 0 comments

LOS ANGELES, Feb 15 (AFP) - A multi-billion-dollar fraud probe that has strained Franco-American ties goes to trial this week, 13 years after French bank Credit Lyonnais bought a failed California insurer.

LOS ANGELES, Feb 15 (AFP) - A multi-billion-dollar fraud probe that has strained Franco-American ties goes to trial this week, 13 years after French bank Credit Lyonnais bought a failed California insurer.

The Los Angeles jury, whose selection begins Wednesday, could force the French corporations to pay more than USD 3.7 billion (EUR 2.8 billion) in restitution and interest, according to the US side.

The French companies and a state-owned enterprise are accused of a fishy 1991 purchase and an attempt to cover it up.

The civil trial follows more than a decade of acrimonious legal wrangling and a plea-bargain that avoided a criminal trial.

"The French parties should have settled the civil case two or three years ago, before doing so in the criminal procedure," said Gary Fontana, lawyer for the California Department of Insurance, which represents around 330,000 former Executive Life policy holders.

"A settlement before the trial (now) seems unlikely," he told AFP, adding that the US side had made offers and was willing to negotiate, but only if the French offer a lot more than they have already proposed.

If a settlement is brokered, as trial Judge Howard Matz has strongly urged, it is more likely to occur after the first phase of the three-month trial during which jurors will decide if the French parties committed fraud, he added.

California Insurance Commissioner John Garamendi brought the civil suit in 1998, alleging he was tricked into selling the failed insurer and its junk bond portfolio to a murky alliance of French parties.

The parties include Credit Lyonnais; the CDR, a French government structure set up to manage the assets of the formerly state-owned bank, Artemis; the holding company of French tycoon Francois Pinault; French insurer MAAF; and Altus, a Credit Lyonnais subsidiary involved in the deal.

The suit claims that Credit Lyonnais used MAAF as a front company to buy Executive Life for two reasons. California law at the time barred foreign governments from controlling insurance companies here. And a US law forbade banks from owning more than a 25 percent stake in a non-banking business.

It alleges that the French parties struck secret pacts, lied about Credit Lyonnais' involvement and then went on to make around USD 2.5 billion (EUR 1.9 billion) in profit when the value of the junk bonds rose sharply in the 1990s.

Now the California Department of Insurance, under pressure from former policyholders, wants payback.

In addition to the restitution of USD 3.7 billion (EUR 2.8 billion), the US side will seek punitive damages of up to 10 times that amount, if the French are found liable.

"My line of attack will be that they lied and made false statements to regulatory agencies and this is a serious crime in the US," Fontana said.

"They should be forced to give up the profits that they made as a result of their fraud."

One of the French firms targeted by the civil suit, Aurora, the rebaptised Executive Life, now a unit of Artemis, on Friday struck a tentative USD 80 million (EUR 61 million) settlement with Garamendi's office, the first significant deal in the civil case.

The civil trial comes after some of the French parties struck a USD 771.75 million (EUR 594.20 million) deal with US prosecutors, approved in December 2003, that averted a diplomatically-sensitive criminal trial. Under the settlement, some of the French parties pleaded guilty to fraud charges.

The plea bargains will be presented to jurors in the civil trial as evidence of alleged wrongdoing by the French parties.

Of the USD 771.75 million (EUR 594.20 million) paid up by the French in the criminal settlement, USD 560 million (EUR 431 million) were put aside for a civil settlement, and the French parties have said they are not prepared to stump up any more.

But if the jury of 12 rules that the French did commit fraud, taxpayers in France could end up having to cough up hundreds of millions of dollars more, as Credit Lyonnais was a state-owned enterprise.

That could add to the tensions in Franco-American ties, already strained by deep differences over the war in Iraq.

But US sources played down the possibility of bilateral tensions influencing jurors. "I don't think, here in (Los Angeles) and in California, that people are particularly against the French," one said.


Subject: French News

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