The State of California has reached a tentative $600 million settlement in a lawsuit against the French bank Crédit Lyonnais related to the sale of Executive Life Insurance in 1991.
A final settlement hinges on whether Sierra National Insurance Holdings, which joined in a lawsuit separate from the state’s case in federal court, will agree to settle claims for a portion of that payment, Norman Williams, a spokesman for California’s Insurance Department, said late Tuesday.
“There is a tentative $600 million settlement on the table right now,” Williams said. “Sierra National Insurance must agree to accept some portion of this settlement.”
An attorney for Sierra National said that the company was still in negotiations over the settlement.
Sierra National was an unsuccessful bidder for Executive Life’s lucrative junk bond portfolio and charged in its lawsuit that fraud by Crédit Lyonnais in the bidding process had deprived it of profit from the bonds.
The state’s lawsuit, filed in 1999, accused Crédit Lyonnais, which was bought by Credit Agricole in 2002 to form France’s largest bank, of concealing the extent of its interest in companies that acquired Executive Life, which state insurance regulators declared insolvent in 1991 and sold at auction.
The French companies acquired the $3.25 billion junk bond portfolio for a fraction of its value and later sold it at a large profit.
The French government controlled Crédit Lyonnais until it was privatized in 1999. In 1995, the government rescued the bank from financial disaster, forming a separate unit, Consortium de Réalisation, to assume the bank’s debts.
California law barred foreign governments from owning state insurers, and the state asserted that Crédit Lyonnais had deprived 300,000 policyholders of profits made from the bonds.
The proposed settlement is far smaller than the damages of more than $3 billion that the California insurance commissioner, John Garamendi, said he would seek when he filed the case in 1999.
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