France said Thursday that it agreed to a $760-million deal to avoid a criminal trial over the role one of its banks played in the allegedly illegal takeover of California's Executive Life Insurance Co. a decade ago.
The bank Credit Lyonnais will plead guilty to a financial reporting violation, according to sources familiar with the deal.
The plea bargain, which could take up to a week to finalize, would rank as one of the most expensive settlements of a U.S. criminal case. Former Executive Life policyholders say the failed insurer's auction for $3.2 billion in 1993 came at a far greater cost to them.
Of the total that various French parties have agreed to pay in fines and fees, at least $450 million would be held in escrow to help cover any settlement or verdict in a lawsuit filed by the California insurance commissioner, according to the sources. An additional $110 million would be immediately available to pay former Executive Life policyholders, who say they lost $4 billion.
The U.S. attorney's office in Los Angeles declined to comment on the deal. Prosecutors are holding a sealed indictment that names about 20 businesses and individuals, including Credit Lyonnais, accusing them of conspiring to fraudulently acquire Executive Life.
Several defendants are expected to plead guilty to criminal felonies and regulatory violations in exchange for immunity from prosecution that might have led to prison time.
Executive Life was seized in 1991 by the Insurance Commissioner John Garamendi when the value of its junk bond holdings collapsed. He declared it insolvent and sold it at auction to what was apparently a consortium of French investors. At the time, foreign banks were barred from owning U.S. insurance concerns. Credit Lyonnais, then owned by the French government, is accused of hiding its purchase of the insurer behind front companies.
Of the 333,000 Executive Life policies then in force, 5,600 were structured settlement annuities designed to be primary sources of income for people hurt in automobile or medical accidents.
Sue Watson, an Arizona woman whose 23-year-old daughter is severely disabled as a result of a medical mishap, said the settlement represented a fraction of what such annuitants lost. "It's not just my daughter; it's a lot of people out there who are taking care of themselves on what they got shorted," Watson said. "People have lost their homes like we did. It's sad."
How any money collected from the French might be distributed has long been the subject of dispute among competing groups of policyholders, including state guarantee funds tapped in the wake of the insurer's insolvency and holders of investment vehicles sold by Executive Life.
Gary Cohen, general counsel for the California Department of Insurance, said his office had no discretion and would split any recoveries according to a formula set out by the Los Angeles County Superior Court, which oversaw the sale of Executive Life.
Rep. Doug Ose (R-Sacramento) said he had not seen details of the plea bargain but planned to scrutinize the allocation of funds. "I don't know why any of these funds would go to anyone other than the victims in this case," Ose said, adding that he would oppose the allocation of fines to the Federal Reserve or to the Justice Department. "I don't see where they were harmed like the annuitants were."
The U.S. attorney's office had negotiated an earlier plea agreement in which defendants would have paid $575 million. That deal unraveled over French demands for an agreement that would protect all French nationals from subsequent criminal prosecution in the case.
After more than three months of contentious negotiations, the deal was expanded to include French billionaire Francois Pinault. The retail magnate and owner of the Gucci empire and Christie's auction house profited from the sale of Executive Life's junk bond portfolio, which he had acquired from Credit Lyonnais.
An immunity deal reached years ago with prosecutors protects Pinault from criminal liability, but under the latest agreement, his holding company Artemis is to pay $185 million, all or part of which is to be financed by Credit Lyonnais, according to sources familiar with the current proposal.
The apparent resolution marks a recent about-face for the French and follows failed diplomatic efforts to derail prosecutors' plans to unveil the criminal indictments and detail the alleged fraud. It also comes amid growing pressure on French President Jacques Chirac, accused by opposition party leaders of placing Pinault's interests ahead of those of French taxpayers by demanding that Pinault be protected.
Credit Lyonnais, which was recently acquired by Credit Agricole, was expected to be able to retain its U.S. banking license, which the alleged fraud had jeopardized, according to sources familiar with the case.
The guilty pleas to be entered are expected to help the California insurance commissioner's lawsuit.
"You can sort of see the light at the end of the tunnel," said Cohen, the Insurance Department lawyer. "We have a case that is really irrefutable in terms of liability. I don't think there is any likelihood that a jury would not determine anything but that there had been fraud, especially now that we are going to have some guilty pleas."