$525 Million Partial Executive Life Settlement

Attorneys for the policyholders of Executive Life have reached a settlement with French bank Credit Lyonnais (CL) and the Consortium de Réalisation (CDR), a government sponsored group, which took over CL’s debts in 1995, providing for a $525 million payment to conclude the civil suit against them.

The agreement brings to a close a protracted lawsuit that has put further strains on already fragile Franco-American relations. The case began following the takeover of Executive Life, once the largest life insurance company in California, in 1991. As part of the rehabilitation of Executive Life, both its insurance business and its junk bond portfolio were put up for sale. CL, through its investment banking subsidiary Altus, reportedly orchestrated a scheme in which it obtained Executive Life’s bond portfolio, and used secret “parking” agreements – referred to in French as portage agreements – to illegally gain control of Aurora National Life Assurance Company, a newly formed California life insurance company that acquired the restructured Executive Life’s insurance business.

The transaction ultimately resulted in criminal charges against the companies and individuals involved. At the time of the deal the federal Glass-Steagle Act was still in force, which prohibited banks from owning or controlling insurance companies. CL and the others were also charged with violating a California statute, which barred foreign governments from controlling insurance companies (CL was effectively owned by the French government at the time).

The criminal charges were settled in December 2003 with the agreement that CL, the CDR and other defendants, along with Artemis S.A., a holding company controlled by French businessman Francois Pinault, would pay a total of $771 million in fines, penalties and victim compensation. However, there was no settlement of the civil cases.

Gary Fontana, the lawyer for the California Insurance Department, appeared in Paris to testify in front of a French judge in the case. Looking very dapper and obviously pleased, he confirmed that a settlement had been reached. The deal must still receive the approval of Judge Howard Matz, who is overseeing the case. It was due to start with jury selection today, Feb. 16, but Matz has reportedly indicated that a settlement should be reached in order to prevent a length (and potentially very costly) trial. The original claims totaled $3.7 billion dollars, but also sought punitive damages in the event fraudulent acts were proven, which could have greatly increased any recovery.

Last Friday, the CID reached an $80 million settlement with another Aurora Life. Pinault and his holding company, Artemis S.A., are now the only major defendants who have failed to settle the matter.