Credit Lyonnais Suit Dismissed by Federal Judge

A federal judge has thrown out a lawsuit alleging that Credit Lyonnais and others engaged in fraudulent activity in the 1993 acquisition of the assets of the futile Executive Life Insurance Co, according to the Los Angeles Times.

California Attorney General Bill Lockyer filed the suit approximately one year ago, asserting that the French bank eluded a state law barring foreign ownership of insurance companies by disguising themselves under a false business front, enabling them to obtain Executive Life’s junk bond portfolio for $3.2 billion.

The allegations arose after former California Insurance Commissioner John Garamendi seized the Executive Life Co. in 1991 in what became the nation’s largest insurance company insolvency at the time. A consortium of French investors acquired the company and its high-risk junk bonds worth $6 billion.

Policyholders quickly filed suit in efforts to thwart the sale, arguing that the value of the bonds was worth more than the $3.2 billion agreed to by Garamendi. However, a judge approved the continuation of the sale in 1993.

It wasn’t until a few yeas later that a whistle-blower alleged that Credit Lyonnais was the purchaser, masking its identity to obtain the insolvent company. That spurned a series of lawsuits with allegations of fraud against the bank and its partners, including one by now-defunct Insurance Commissioner Chuck Quackenbush, Lockyer’s, and two by policyholders.

U.S. District Judge A. Howard Matz threw out the suits filed by policyholders on the grounds that the insurance commissioner had the exclusive standing to press the case. One of the suit’s dismissal was upheld by the U.S. 9th Circuit Court of Appeals and a ruling is pending for the other.

Credit Lyonnais and some of its partners purportedly sold the bonds for a profit of at least $2 billion, according to authorities. Policyholders lost an estimated $4 billion. Lockyer sought $6 billion in damages for violations of the of the state’s false claims and unfair competition law, in addition to the federal anti-racketeering act. Matz ruled again that the insurance commissioner has exclusive standing to further press the case.

Lockyer and the policyholders alleged deal broker Apollo Advisors and a number of its principals of taking part in the scheme. According to the policyholders, Apollo made $500 off the deal, money that the policyholders feel should be returned to them. If the dismissals remain, the Apollo defendants will be relinquished from accountability, as they already exchanged testimony for release of liability in an agreement with the insurance commissioner last year.

Lockyer’s spokesperson, Sandra Michioku, said Lockyer was considering an appeal to the U.S. 9th Circuit Court of Appeals.

Topics Lawsuits USA Legislation