French government agency CDR and French bank Credit Lyonnais have agreed to pay $600 million to settle two lawsuits by the state of California and a rival bidder over the 1991 sale of failed insurer Executive Life Insurance Company, says Reuters.
The deal was reached a day before jury selection was set to begin in Los Angeles. It includes a $225 million payment on top of the $375 million CDR agreed to last year to pay into an escrow account for Executive Life policyholders to settle federal criminal charges.
The twin cases were joined for trial in federal court and the settlement will be divided between the two plaintiffs, with the state of California receiving $525 million and Sierra National Insurance Holdings receiving $75 million, the CDR spokesman said. The settlement must be approved by a federal judge.
The state’s lawsuit, filed in 1999, accused Credit Lyonnais of concealing the extent of its interest in companies that acquired Executive Life, which state insurance regulators declared insolvent in 1991 and sold off at auction. Through shell companies, Credit Lyonnais was able to acquire Executive Life’s valuable junk bond portfolio in violation of a state law that bars foreign banks from owning California insurers. Credit Lyonnais bought the portfolio for $3.25 billion – a fraction of its value — and later sold it at a profit estimated at $2 billion.
The state has recovered a combined $715 million from CDR, Artemis and its US unit Aurora for 330,000 policyholders who saw the value of their policies drastically cut when the state declared the insurer insolvent, Williams said.
When news of the proposed settlement leaked out on Tuesday, Executive Life bondholders and policyholders criticized Insurance Commissioner John Garamendi for abandoning his pledge to demand restitution for $3.7 billion in damages. Elliott Associates, which owns more than $400 million in bonds backed by policies issued by Executive Life, called the settlement figure “patently unfair and totally ludicrous in the face of billions that have been stolen from policyholders.” A representative for policyholders, who claim they lost more than $4.5 billion, said they were “shocked and outraged” and called on state lawmakers to investigate the settlement. They also called on Garamendi to resign.