The chairwoman of a state Senate oversight committee has requested an audit of a $600 million settlement between the state insurance department and defendants accused of fraudulently acquiring the assets of the now-defunct insurer Executive Life, a group of policyholders said Monday.
State Sen. Jackie Speier, D-San Francisco/San Mateo, met with the Executive Life Action Network on Friday and agreed to hold a hearing and request the state audit, according to a printed statement released by policyholders.
The group alleges that Insurance Commissioner John Garamendi settled for too little. The more than 300,000 affected policyholders say they suffered losses of more than $4 billion as a result of the takeover of Executive Life in the early 1990s by the French bank Credit Lyonnais.
Garamendi’s office was closed for President’s Day on Monday and messages left for a spokeswoman were not immediately returned.
“We want Mr. Garamendi to explain how he could settle for so little when so many … have lost so much,” Sue Watson, co-founder of the Executive Life Network, said in the statement. “This hearing can insure that a California insurance regulator is never able to cause so much damage to so many again.”
The California Department of Insurance announced Feb. 15 that it had reached a $600 million deal in the suit against Credit Lyonnais and several investors, including the National Organization of Life and Health Guaranty Associations, Sierra and the French state-funded body Consortium de Realisation, which took over Credit Lyonnais’ debts and bad assets before the bank was privatized in 1999.
Sierra is due to receive a $75 million slice of the settlement, while the other $525 million – including $375 million that had already been placed in escrow as part of a separate settlement of criminal charges between Credit Lyonnais and the U.S. government – will go to the state to help recoup losses for policyholders, Norman Williams, Garamendi’s spokesman, said last week.
Executive Life failed in 1991 after its portfolio of junk bonds – some 60 percent of its assets – lost much of its value. The state took over the insurer then auctioned off its assets.
The junk bonds were sold for $3.25 billion to an investor group led by Jean-Francois Henin, head of Altus Finance SA, a subsidiary of Credit Lyonnais. The insurance company’s portfolio of policies was sold to French insurer MAAF Assurances SA.
The investors ended up collecting billions of dollars from the junk bonds when the market picked up.
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