$110 Million from Settlement in Credit Lyonnais Case Transferred to Calif. Commissioner’s Office

$110 million paid by Artemis S.A. in a settlement with the United States Attorney’s Office in connection with the Credit Lyonnais criminal case has been transferred to the California Insurance Commissioner, United States Attorney Debra Yang announced. The funds are earmarked for distribution to claimants in the rehabilitation proceeding involving the failed Executive Life Insurance Company of California to compensate them for their losses.

The transfer, which occurred on May 25, 2004, is the result of a settlement agreement between Artemis, a holding company controlled by French businessman Francois Pinault, and the United States Attorney’s Office.

Pursuant to that agreement, Artemis paid $185 million – the $110 million that has been transferred to the California Commissioner, and an additional $75 million that is being held in reserve in a settlement fund pending the outcome of the Commissioner’s civil lawsuit that was filed on behalf of former Executive Life policyholders. Artemis also paid $500,000 to compensate the United States Attorney’s Office for costs incurred during the criminal investigation.

The settlement with Artemis was part of a broader agreement that involved the French bank Credit Lyonnais S.A.; CDR-Entreprises S.A. (CDR-E), a subsidiary of the French government entity that acquired the bank’s nonperforming assets in 1995; MAAF Assurances S.A. (MAAF), a major French mutual insurance company; and Jean-Claude Seys, the chairman of MAAF.

Pursuant to plea agreements, Credit Lyonnais, CDR-E, MAAF and Seys in January entered guilty pleas to criminal charges that they made false statements to, and concealed material facts from, federal banking regulators in connection with the acquisition of junk bonds and the insurance business of Executive Life. Credit Lyonnais, CDR-E, MAAF and Artemis have paid a cumulative total of $770.5 million in criminal fines, civil penalties and amounts being held in reserve in a settlement fund pending the outcome of the Commissioner’s lawsuit. Other individuals associated with MAAF and Artemis have paid an additional $1.25 million in criminal fines and penalties, bringing the total settlement amount to $771.75 million – which is believed to be the largest settlement in a criminal case in United States history.

The guilty pleas and settlement agreements stem from the illegal takeover of Executive Life, which was once the largest life insurance company in California and held a multibillion dollar portfolio of “junk bonds.” In 1991, Executive Life was declared insolvent and was seized by the California Department of Insurance.

As part of the rehabilitation of Executive Life, both its insurance business and its junk bond portfolio were put up for sale. Credit Lyonnais, through its investment banking subsidiary Altus Finance S.A., orchestrated a reported scheme in which it obtained Executive Life’s bond portfolio, and used secret “parking” agreements – referred to in French as portage agreements – to gain illegal control of Aurora National Life Assurance Company, a newly formed California life insurance company that acquired the restructured Executive Life insurance business. These secret portage agreements, and Credit Lyonnais’ resulting illegal control of the insurance business, remained concealed until the reported fraud came to light in the summer of 1998, when an anonymous whistleblower alerted California authorities of their existence.

In December 2003, a federal grand jury in Los Angeles indicted six French nationals, including two former chairmen of Credit Lyonnais, on various charges for their role in a conspiracy to illegally acquire the assets of the bankrupt Executive Life. The indictment alleges conspiracy to commit mail and wire fraud, mail fraud, wire fraud, conspiracy to defraud the United States and violate the Bank Holding Company Act, criminal violation of the Bank Holding Company Act and making false statements to the Federal Reserve during the course of the criminal investigation.

In February 2004, Dominique Bazy, 52, of Paris, one of the six charged in the indictment, pleaded guilty to a felony charge of causing Credit Lyonnais to make false statements to the Federal Reserve. Bazy paid the maximum possible fine of $250,000, and he was banished from the United States for a period of three years.

The five other defendants named in the indictment all currently reside in France. If convicted of the various charges in the indictment, they all face substantial prison sentences.

The case is the result of a five-year investigation by the Federal Bureau of Investigation, acting in coordination with the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.