French state unit pays EUR 461m in US fraud case

15th February 2005, Comments 0 comments

LOS ANGELES, Feb 15 (AFP) - Credit Lyonnais and the French government Tuesday tentatively agreed to pay USD 600 million (EUR 461 million) to settle the allegedly fraudulent 1991 purchase of California insurer Executive Life, an official said.

LOS ANGELES, Feb 15 (AFP) - Credit Lyonnais and the French government Tuesday tentatively agreed to pay USD 600 million (EUR 461 million) to settle the allegedly fraudulent 1991 purchase of California insurer Executive Life, an official said.

Credit Lyonnais and the CDR, a French government entity that manages the assets of the formerly state-owned bank, struck the deal with the California Department of Insurance hours before the diplomatically-thorny case was due to go to trial in Los Angeles.

The lawsuit filed by California's insurance commissioner, seeks USD 3.7 billion (EUR 2.8 billion) in restitution and interest from the French parties involved in the allegedly illegal acquisition of the US insurer 13 years ago.

"Under the agreement in principle, they have agreed to pay a total of USD 600 million (EUR ," state insurance department spokesman Norman Williams told AFP.

Officials close to the case had earlier said the three parties had agreed on an amount of USD 525 million (EUR 404 million), but negotiations during the course of the day added a new player to the mix, raising the settlement.

Sierra National Insurance Holdings Inc., which lost out to the French firms led by Credit Lyonnais in the bidding for Executive life in 1991, was brought into the tentative settlement, but has yet to approve it.

"Sierra has to agree to the deal, and then they will get a portion of this amount," Williams said, explaining the 11th-hour change and adding that how the USD 600 million (EUR 461 million) will be split had yet to be decided.

The two French parties struck the deal with the California Department of Insurance just hours ahead of the start of Wednesday's jury selection in the explosive civil trial.

But the deal must be approved by Judge Howard Matz, who is overseeing the case and who has urged a settlement to avoid a messy trial, which could also further strain Franco-American relations.

The tentative settlement should allow Credit Lyonnais and the CDR, two of the three major entities targeted by the lawsuit, to escape the trial that could cost them billions of dollars with a total outlay of only USD 600 million (EUR 461 million).

In the civil case, filed in 1998, California's insurance commissioner John Garamendi alleges that he was tricked into selling the failed insurer and its valuable junk bond portfolio.

Those targeted by the suit include Credit Lyonnais and the CDR; Artemis, the holding firm of French billionaire 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 to buy Executive Life, as California law at the time barred foreign governments from controlling insurance companies and federal law banned banks from owning more than a 25 percent stake in a non-banking business.

The allegedly ill-gotten junk bond portfolio was then sold on to Artemis, which is accused of making a 2.5 billion dollar profit, to the detriment of policyholders, it claims. In addition to the 3.7 billion dollars sought in the suit, a jury could also impose punitive damages of 10 times that amount, US sources say.

Faced with that prospect, another French firm in the case, Aurora - the rebaptised Executive Life - reached an USD 80 million (EUR 61 million) settlement last Friday, leaving just one major player out in the cold: Artemis. "The boat has left but Artemis is not on the boat," said the insurance department's lead lawyer, Gary Fontana.

The civil trial comes after French parties struck a 771.75 million (EUR 593.18 million) deal with US prosecutors, approved in December 2003, that averted a criminal trial.

Under that settlement, in which some of the French parties pleaded guilty to fraud, the CDR placed USD 375 million (EUR 288 million) in escrow with US authorities.

Under Tuesday's deal, it would have to pay an additional USD 225 million (EUR 172 million) towards the civil settlement to make up the 600 million (EUR 461 million).

But former Executive Life policyholders, who are demanding around USD 4 billion (EUR 3 billion) to cover their losses, were disgusted over what they described as a derisive settlement.

"Credit Lyonnais and its co-defendant, CDR, have already pleaded guilty to a federal crime, and the State of California is giving them a traffic ticket," the Executive Life Action Network said in a statement.

© AFP

Subject: French News

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