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French Bank Is Indicted in Insurer Case

Sealed charges relate to Lyonnais' purchase of Executive Life in 1993 and could be disclosed next week, sources say.

August 27, 2003|Lisa Girion | Times Staff Writer

A federal grand jury in Los Angeles has issued a sealed criminal indictment of Credit Lyonnais, other businesses and individuals connected to the French bank's early-1990s acquisition of California's Executive Life Insurance Co., according to several sources familiar with the matter.

U.S. prosecutors have had the sealed indictment in hand since at least the end of July and have told targets they would lodge the fraud charges publicly as early as next week, sources said. Prosecutors are reportedly insisting that the defendants plead guilty to criminal charges and pay fines and penalties that total more than $500 million.

Credit Lyonnais, which has been in negotiations with the Justice Department for several months, indicated recently that prosecutors had issued an ultimatum -- and that a deadline was fast approaching.

The bank, in an Aug. 1 statement, said, "Credit Lyonnais has been informed that if the Executive Life matter is not resolved by the end of August, there will be a public indictment of Credit Lyonnais and others."

The bank didn't say, however, that a sealed indictment already had been issued.

A spokesman for the bank said Tuesday that it had no comment on the sealed indictment and no amplification of its earlier statement. A spokesman for the U.S. attorney's office in Los Angeles also declined to comment.

The outcome of the criminal case is expected to influence the course of a related lawsuit being pressed by California Insurance Commissioner John Garamendi. Both matters stem from Garamendi's seizure of Executive Life in 1991 after he determined that junk bond losses left it insolvent.

Garamendi sold Executive Life for $3.2 billion at auction in 1993 to what regulators believed was a consortium of French investors. Five years later, a whistle-blower came forward with information that the true purchaser was Credit Lyonnais and that the investors had been fronts to conceal the bank's identity. At the time, state and federal laws barred foreign banks from owning insurance companies.

In the lawsuit, Garamendi is seeking damages from Credit Lyonnais and its associates to help compensate policyholders for losses estimated to be as much as $4 billion.

Sources familiar with the criminal case said the sealed indictment named 15 to 20 businesses and individuals, including Consortium de Realisation, a French government-owned corporation that bailed the bank out of insolvency in 1995.

The indictment is said to contain several charges that are punishable by fines and, for individuals, imprisonment. Those charges include conspiracy as well as mail and wire fraud.

Sources said other accusations included filing false statements to the Federal Reserve, which grants U.S. banking licenses. If Credit Lyonnais pleads guilty to a charge, it could lose its U.S. banking license. Credit Lyonnais is in the process of merging with another French bank, and it is unclear what effect the case might have on the combined bank's U.S. licensing status.

The French government, through Consortium de Realisation, would have to pick up the tab for any settlement of lawsuits and civil penalties related to the Executive Life takeover. But the bank would have to pay any criminal fines.

George J. Terwilliger, a Washington-based lawyer for Credit Lyonnais and CDR, would not discuss the indictment.

"It's no secret we've been involved in discussions with the U.S. attorney's office for quite some time," Terwilliger said. "We remain hopeful that they will be fruitful."

Jan L. Handzlik, a Los Angeles lawyer who represents a former officer of one of the involved companies, declined to comment.

Prosecutors are believed to have sought the sealed indictment to strengthen their demand for guilty pleas and substantial fines.

In addition, prosecutors faced the approaching expiration of the 10-year statute of limitations on many of the crimes they allege, which center on the 1993 sale of Executive Life. Obtaining a sealed indictment preserves the prosecutors' case, stopping the statute clock while plea bargain discussions proceed.

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