Massive payout in Franco-US fraud case approved

17th February 2005, Comments 0 comments

LOS ANGELES, Feb 16 (AFP) - The French government and Credit Lyonnais bank Wednesday sealed a USD 600 million (EUR 461.5 million) settlement with California authorities over the disputed 1991 purchase of insurer Executive Life, averting a trial that could have cost them billions.

LOS ANGELES, Feb 16 (AFP) - The French government and Credit Lyonnais bank Wednesday sealed a USD 600 million (EUR 461.5 million) settlement with California authorities over the disputed 1991 purchase of insurer Executive Life, averting a trial that could have cost them billions.

The finalised deal removes Credit Lyonnais and the CDR - a French state entity that manages the assets of the formerly state-owned bank - from a diplomatically-prickly fraud trial that began in Los Angeles on Wednesday.

It was approved by US federal Judge Howard Matz minutes before France's finance minister confirmed details of the deal between the two French parties, the California Insurance Department and US insurer Sierra National Insurance Holdings Inc.

"Judge Matz endorsed the out-of-court settlement," said Pierre Denizet, managing director of the CDR, outside the courtroom where a trial jury was being selected in the lawsuit that seeks USD 3.7 billion (EUR 2.8 billion) in restitution.

"This settlement is the combination of a strategy that began with the settlement of the criminal case in December 2003. We are gratified that this strategy has worked out," he said.

The insurance department will receive USD 525 million (EUR 402 million), while Sierra, which lost out to French firms led by Credit Lyonnais in the bidding for Executive life in 1991, will receive USD 75 million (EUR 57 million).

French Economy and Finance Minister Herve Gaymard confirmed in a statement from Paris that a settlement to the seven-year-old civil suit that has helped further sour already strained Franco-American relations.

He stressed that the USD 600 million (EUR 461 million) included USD 375 million (EUR 287 million) paid by the CDR under the 771.75 million (EUR 591.41 million) criminal settlement in the case in 2003, money which has been held in escrow to settle the civil case.

That means that the state-owned body and Credit Lyonnais would have to stump up another USD 225 million (EUR 172 million).

The civil suit was filed by California's Insurance Commissioner John Garamendi in 1998 on behalf of more than 330,000 former Executive Life policyholders.

But the fraud trial is still set to go ahead as the last major party targeted by the suit, Artemis - the holding company of French billionaire Francois Pinault - has not struck a settlement, so far at least.

"Artemis and MAAF are not in the settlement," Denizet, referring also to French insurer MAAF, a minor party involved in the action.

The Credit Lyonnais-CDR settlement came hours later than expected after the French government raised last-minute objections to the politically-sensitive deal early Wednesday, a lawyer in the case told AFP.

One US source said Paris had initially held up the partial settlement because Artemis, run by Pinault, a close friend of French President Jacques Chirac, was not included.

Artemis is accused of buying Executive Life's lucrative - and allegedly ill-gotten - junk bond portfolio in 1995 after Credit Lyonnais allegedly illegally acquired the California insurer and then sold off its assets.

The civil suit claims 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.

Those targeted by the civil suit included Credit Lyonnais, the CDR, Artemis, MAAF, Altus, a Credit Lyonnais subsidiary that bought Executive Life, and insurer Aurora - the rechristened Executive Life - which agreed to an 80 million (EUR 61 million) settlement last week.

Only Artemis and MAAF are now set to go to trial. In addition to the 3.7 billion (EUR 2.8 billion) in restitution, the jury could also impose huge punitive damages on the French parties if fraud is found.

US sources said Wednesday that if Artemis were to agree to a settlement total of USD 445 million (EUR 340 million), "the deal would be signed tonight."

But Artemis lawyers had said Tuesday they were ready to go to trial rather than agree to cough up more cash.

While lawyers who brokered the settlement were delighted, outraged former Executive Life policy holders who claim they lost up to USD 4.5 billion (EUR 3.4 billion), demanded a California state senate investigation into the deal.

"We are shocked and outraged that the largest financial fraud in California history would be settled for so little and without even a fight," said Sue Watson, co-founder of the Executive Life Action Network.

© AFP

Subject: French News

0 Comments To This Article