Credit Lyonnais and Others to Plead Guilty and Pay $771 Million in Executive Life Affair

French bank Credit Lyonnais S.A.; CDR‑Entreprises S.A. (CDR‑E), a subsidiary of the French government entity that acquired the bank’s nonperforming assets in 1995; MAAF Assurances S.A. (MAAF), a major French mutual insurance company; and Jean‑Claude Seys, the Chairman of MAAF, have agreed to plead guilty to criminal charges that they made false statements to federal banking regulators in connection with the acquisition of junk bonds and the insurance business of the failed Executive Life Insurance Company of California.

As part of a broader settlement agreement, Credit Lyonnais, CDR‑E, MAAF and Artemis S.A., a holding company controlled by French businessman Francois Pinault, will pay a cumulative total of $770.5 million. Other individuals associated with MAAF and Artemis have agreed to pay an additional $1.25 million, bringing the total settlement amount to $771.75 million – which is believed to be the largest settlement in a criminal case in United States history.

The plea and settlement agreements, which were filed yesterday afternoon in United States District Court in Los Angeles, were announced at a news conference this morning by United States Attorney Debra W. Yang, FBI Assistant Director in Charge Ronald Iden, and California Insurance Commissioner John Garamendi. In a press release made from Washington this morning, the Federal Reserve announced its parallel administrative enforcement action against former Credit Lyonnais Chairman Jean Peyrelevade and a consent order against Credit Lyonnais.

The plea agreements, which were executed earlier this week, call for Credit Lyonnais and CDR‑E to each plead guilty to three felony counts of making false statements to the Federal Reserve. Credit Lyonnais will pay a $100 million criminal fine, as well as an additional $100 million civil penalty imposed by the Federal Reserve. An additional $375 million will be paid by CDR‑E into a settlement fund available to the California Insurance Commissioner for distribution to former Executive Life policyholders to compensate them for lost benefits. These funds will be held in reserve pending the outcome of a civil lawsuit previously filed by the Commissioner.

MAAF and its chairman, Jean‑Claude Seys, have each agreed to plead guilty to two felony charges of causing false statements to be made to the Federal Reserve. MAAF will pay a $10 million criminal fine. Seys will pay a $250,000 criminal fine and be banished from the United States for a period of five years.

The settlement also includes Artemis, which will pay $185 million—$110 million that will immediately be distributed to former Executive Life policyholders to compensate them for lost benefits, and an additional $75 million that will be held in reserve in a settlement fund pending the outcome of the Commissioner’s lawsuit.  Artemis is also paying $500,000 to compensate the United States Attorney’s Office for costs incurred during the investigation. Pinault and Artemis are not criminally charged as they have been cooperating in the investigation since June 2000 in exchange for immunity from prosecution.

Two other individuals associated with Artemis are also part of the settlement. Patricia Barbizet, Artemis’ managing director, has agreed to a three‑year period of pre‑indictment diversion that requires her to pay $1 million and prohibits her from entering the United States during the period of her diversion. Marie‑Christine de Percin, a former lawyer for Artemis, also has agreed to a three‑year period of diversion that prohibits her from entering the United States during that time.

In addition to the plea and settlement agreements, a federal grand jury in Los Angeles indicted six French nationals yesterday, including two former chairmen of Credit Lyonnais, on various fraud and other charges for their role in a conspiracy to illegally acquire the assets of the bankrupt Executive Life.

Executive Life, which was once the largest life insurance company in California, held a multibillion dollar portfolio of "junk bonds." In 1991, Executive Life was declared insolvent and was seized by the California Department of Insurance. As part of the rehabilitation of Executive Life, both its insurance business and its junk bond portfolio were put up for sale. Credit Lyonnais, through its investment banking subsidiary Altus Finance S.A., 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 gain illegal control of Aurora National Life Assurance Company, a newly formed California life insurance company that acquired the restructured Executive Life insurance business. These secret portage agreements, and Credit Lyonnais’ resulting illegal control of the insurance business, remained concealed until the fraud came to light in the summer of 1998 when an anonymous whistleblower alerted California authorities of their existence.

The criminal information filed yesterday in connection with the plea agreements includes allegations that Credit Lyonnais and Altus concealed from the Federal Reserve material facts relating to their illegal ownership and control of interests in two American investment funds, Artemis and Aurora. The indictment against the individuals alleges their participation in the scheme through a wide range of fraudulent practices, including making a series of false statements to the Federal Reserve, the California Insurance Commissioner and the court presiding over the Executive Life rehabilitation.

"Through a complicated series of secret agreements, Credit Lyonnais and others concealed a web of illegal relationships and transactions between the French bank, its various subsidiaries, Artemis, MAAF and the sizable assets of the failed Executive Life," said United States Attorney Debra W. Yang.  "These repeated deceptions, which spanned more than a decade and involved the highest levels of Credit Lyonnais management, defrauded the United States, California authorities and, most importantly, the approximately 350,000 policyholders of Executive Life."

"The investigation of this fraud has taken five years," Ms. Yang continued. "The unprecedented results we are announcing today would not have been possible without the support of Attorney General John Ashcroft and the wise counsel of former Deputy Attorney General Larry Thompson."

The indictment returned yesterday charges six defendants:

•           Jean‑Yves Haberer was chairman and president of Credit Lyonnais from 1988 until November 1993, and served as chairman of Altus from 1990 until December 1993. He is charged with conspiracy to commit mail and wire fraud, mail fraud, wire fraud, conspiracy to defraud the United States and violate the Bank Holding Company Act, and criminal violation of the Bank Holding Company Act.

•           Jean Peyrelevade, who replaced Haberer, served as chairman of Credit Lyonnais from November 1993 until he resigned from Credit Lyonnais in October 2003. He is charged with conspiracy to defraud the United States and violate the Bank Holding Company Act, criminal violation of the Bank Holding Company Act, and making false statements to the Federal Reserve, the United States Attorney's Office and the FBI during the government's investigation.

•           Francois Gille was Credit Lyonnais’ general manager and financial director, and also served as a director of Altus, in the 1990s.  He is charged with conspiracy to commit mail and wire fraud, mail fraud, wire fraud, conspiracy to defraud the United States and violate the Bank Holding Company Act, and criminal violation of the Bank Holding Company Act.

•           Dominique Bazy was a member of Peyrelevade’s executive committee and the Chairman of Altus from November 1993 until July 1995. He is charged with conspiracy to commit mail and wire fraud, mail fraud, wire fraud, conspiracy to defraud the United States and violate the Bank Holding Company Act, and criminal violation of the Bank Holding Company Act .

•           Jean‑Francois Henin was the managing director of Altus and became an advisor to Pinault and Artemis.  He is charged with conspiracy to commit mail and wire fraud, mail fraud, wire fraud, conspiracy to defraud the United States and violate the Bank Holding Company Act, and criminal violation of the Bank Holding Company Act.

•           Eric Berloty was an Altus consultant in the 1990s on accounting, tax and other financial matters. He is charged with conspiracy to commit mail and wire fraud and wire fraud.

These defendants all currently reside in France. If convicted of the various charges in the indictment, they all face substantial prison sentences.

"One of the reasons the FBI investigates white‑collar crime is to help keep the economy stable," said FBI Assistant Director in Charge Ronald Iden. "The investigation into the fraudulent business practices of Credit Lyonnais and its subsidiaries demonstrates that we can and will aggressively investigate such crimes regardless of their complexity or duration. To that end, the FBI wishes to make this clear to all corporate and banking executives: even though we are dedicating substantial resources to the fight against terrorism, the FBI remains fully committed to investigating significant white‑collar crime."

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

The parties that have agreed to plead guilty are expected to appear in United States District Court in Los Angeles early next year.

This case is the result of a five‑year investigation by the Federal Bureau of Investigation, acting in coordination with the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.