Credit Lyonnais and other French firms connected will pay a total of $771 million to settle charges that the French bank’s takeover of Californian insurer Executive Life took place at a time when US law banned such deals. The settlement, announced by US prosecutors in Los Angeles and Federal Reserve officials in Washington, includes $375 million for former policy holders of Executive Life, which became insolvent in 1991. California Insurance Commission officials say they will nevertheless pursue a law suit seeking at least $3 billion from Credit Lyonnais. Potential damages to Credit Lyonnais, related companies and some individuals could rise as high as $9 billion in the civil law suit, which comes to trial in February 2005.
Last week, a federal grand jury issued a 23-count indictment against two former Credit Lyonnais chairmen and four others accused of conspiracy and making false statements to US regulators. Among those named in the indictment were Jean Peyrelevade and Jean Yves Haberer, both former Credit Lyonnais chairmen, former Credit Lyonnais deputy managing director Francois Gille and former executive committee member Dominique Bazy. The government claims the men tried to hide the involvement of Credit Lyonnais in the takeover.
Although it is alleged that the takeover harmed 350,000 former Executive Life policy holders, the French have denied this, and Credit Lyonnais has neither admitted nor denied the allegations in its settlement with the Fed. Until the reform of US banking law in 1999, cross-ownership of insurers and banks was banned in the United States. The alleged fraud involved a scheme to hide the involvement of Credit Lyonnais, then owned by the French government, in taking over Executive Life’s junk bond portfolio. Prosecutors reached plea agreements with French insurer MAAF and its chairman and managing director, Jean Claude Seys, as well as settlements with billionaire Francois Pinault and his holding company, Artemis S.A. Credit Lyonnais agreed to pay $100 million criminal fine, and a $100 million Federal penalty.
Consortium de Realization, a French government agency set up to take over Credit Lyonnais’s debt, will pay $375 million into a settlement fund for former Executive Life policyholders. MAAF will pay a $10 million criminal fine while Artemis will pay $185.5 million to compensate policyholders and defray the costs of the U.S. investigation. Additional fines against individuals named in the settlement bring the total to more than $771 million. Consortium de Realization said in a statement that it had accepted the guilty plea “to end this prolonged dispute so that we can concentrate on defending the civil claims.” The civil fraud case will go to trial on 15 February 2005 in Los Angeles.
The US regulators were alerted to the illegal takeover of Executive Life in 1998 – in which Credit Lyonnais and other firms acquired control of Executive Life and its valuable junk bond portfolio through a series of complex financial dealings – by a still-unnamed whistleblower. Credit Lyonnais is now owned by Credit Agricole.