A photo taken in a restaurant 13 years ago captured the occasion–a deal signed by California’s chief insurance regulator that ultimately paved the way for the sale of insurer Executive Life to a group of French investors.
But the executives in the photo shown to jurors March 2 in the state’s lawsuit against the investor group never disclosed they had drawn up secret contracts that effectively placed the failed insurer under control of a French government-run bank, Insurance Commissioner John Garamendi testified.
“There was no such discussion and no information about that at all,” Garamendi said, adding that if he had known of such contracts, he would have ceased to consider the investor group’s offer. The state’s lawsuit claims an investor group led by Altus Finance SA, a subsidiary of French bank Credit Lyonnais, conspired to conceal that the bank, controlled by the French government at the time, would acquire primary interest in Executive Life. California law prevents foreign governments from owning insurers in the state.
“We had made it very clear that they could not own the insurance company,” Garamendi said under questioning by attorney Gary Fontana, who represents the state. Garamendi took control of Executive Life in 1991 upon discovering that the insurer was financially unstable, largely because it had become overloaded with junk bonds.
Most of the original parties named as defendants in the case, including Credit Lyonnais, have settled out of court. French company Artemis SA and its founder, billionaire Francois Pinault, remain in the case.
The lawsuit also alleges Artemis was formed as part of a conspiracy by Credit Lyonnais to keep federal regulators from learning the bank had improperly acquired Executive Life’s assets, including junk bonds.
Attorneys for the investors contend Garamendi knew or should have known all along about the relationship between Credit Lyonnais and the French government but ignored it because the investors had entered the highest bid for the assets.
Garamendi decided to sue for damages in 1999 only because he wants to get a slice of a junk bond windfall later reaped by the investors, the defendants claim.
Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.