According to an article in The Economist, the Justice Department is preparing to bring criminal charges against French bank Crédit Lyonnais and several of it U.S. managers. The move comes as a result of investigations into CL’s 1991 takeover of failed California insurer Executive Life and its junk bond portfolio.
U.S. bank regulators in New York are also considering suspending the bank’s license as a result of their own investigation. These actions are independent of the lawsuits for financial recovery brought in California by ex-Insurance Commissioner Chuck Quackenbush, and have apparently revealed several breaches of U.S. law.
Executive Life’s junk bonds were sold to CL, and subsequently transferred to a subsidiary, Altus Finance. Executive Life’s insurance portfolio was acquired by private investors, and renamed Aurora. Both companies are now owned by Artemis S.A., the holding company of French billionaire financier, François Pinault, who’s also a defendant in the Quackenbush lawsuits. The criminal inquiry questioned the nature of the transaction, and the interest CL continued to have in the bonds.
Authorities believe that the bank in fact controlled the insurance company’s actions, which at the time breached U.S. law prohibiting banks from owning or controlling insurers. The failure to disclose these links and the actions of CL managers, who apparently arranged for the bank to reap windfall profits from the junk bonds, form the main case against it.
Regulators have also indicated that knowledge of the illegal transactions extends beyond the U.S. managers, all the way to CL’s highest levels, as the transactions were fully disclosed to its current head, Jean Peyrelevade in 1993 when he took over as president. He has denied any knowledge of any wrongdoing until 1998, when he says certain suspect transactions by Altus came to light.
According to CL spokesman, these were immediately presented to U.S. authorities, and the bank has fully cooperated in all investigations. If the charges are proven, CL faces large fines, its managers possible jail terms, and perhaps the most serious sanction of all – loss or suspension of the its license to transact business in the U.S.
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