Prosecutors Reject French Deal

U.S. prosecutors have rebuffed a French offer to pay as much as $725 million to resolve criminal allegations stemming from the sale of Executive Life Insurance Co., sources familiar with the matter said Friday.

Talks are continuing, and a Nov. 24 deadline imposed by the U.S. attorney’s office in Los Angeles remains in place, sources said.

If the latest deadline expires without a deal, prosecutors may make public a sealed indictment issued this year by a federal grand jury. The indictment charges French bank Credit Lyonnais and several associates with fraudulently acquiring Executive Life in 1993.

State and federal laws at the time barred foreign banks from owning insurance companies. The bank is alleged to have hidden its role in the purchase behind front companies that acted as investors.

California Insurance Commissioner John Garamendi seized Los Angeles-based Executive Life in 1991 after the value of its junk bond holdings declined precipitously. The French investor group bought Executive Life at auction for $3.2 billion.

Credit Lyonnais also is alleged to have financed French billionaire Francois Pinault’s purchase of Executive Life’s junk bond portfolio, which he sold after the market recovered.

Credit Lyonnais, the French government, which owned the bank until 1999, and several alleged co-conspirators had agreed to plead guilty and pay $575 million. But the deal fell apart before it was finalized because prosecutors refused to grant immunity to former Credit Lyonnais Chairman Jean Peyrelevade and others.

The French submitted a new proposal about a week ago that included an increase in fines and fees. But U.S. prosecutors viewed that proposal as flawed because it could have prevented them from pursuing possible future criminal investigations, sources said.

Prosecutors responded with a counterproposal Thursday that addressed that concern.

The latest round of negotiations would have Artemis, a company owned by Pinault, make a guilty plea and contribute more than $100 million, sources said.

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Bloomberg News was used in compiling this report.