U.S.

French Bank Under Fire

February 11, 2002 / 10:56 AM EST / AP

Hundreds of thousands of policyholders who say they suffered serious financial harm when a French bank secretly bought a California life insurance company are urging Attorney General John Ashcroft to bring a criminal case against the bank.

Federal prosecutors in Los Angeles recommended indicting Credit Lyonnais last April and are still waiting for the go-ahead from Justice Department superiors in Washington, said lawyers familiar with the investigation who spoke on condition of anonymity.

Representing the financial institution is George Terwilliger, a deputy attorney general under former President George Bush and one of the legal strategists who helped the current President George W. Bush during the Florida ballot recount fight.

More recently, Terwilliger was considered for FBI director and has been a vocal defender of the president's plan to use military tribunals in prosecuting the war on terrorism.

Because the French bank, in acting through a front company, won control of the assets of the insolvent Executive Life Insurance Co., policyholders like Katie Watson who was 20 months old when she was brain-damaged by a hospital error lost 54 percent of her court-ordered monthly annuity, says Maureen Marr of Los Angeles, an activist who is helping the policyholders.

Federal law bars a bank from owning an insurance company and California law prohibits a foreign government from owning an insurance company. The French bank's secret role as purchaser in the 1992 deal didn't come to light until 1998.

Michael Chertoff, head of the Justice Department's criminal division, planned a videoconference call Monday with California Attorney General Bill Lockyer and state Insurance Commissioner Harry Low.

Lockyer, a Democrat who is seeking re-election, sued Credit Lyonnais seeking $2 billion in damages, alleging that more than 300,000 policyholders were harmed by the bank's actions.

The policyholders are seeking a meeting with Ashcroft, fearing that the Bush administration may back away from a criminal case.

"We are ... aware that Credit Lyonnais has retained highly influential" attorneys, said a letter signed last week by several of the policyholders, including the parents of Katie Watson.

In an interview Sunday, Terwilliger declined to say whether he has met with Justice Department officials about Credit Lyonnais.

"Without acknowledging what has or has not occurred in this case, in my own experience at the Justice Department it was not unusual to both have discussions internally with prosecutors and externally with attorneys for subjects of the investigations," he said.

Credit Lyonnais may be trying to avoid pleading guilty to crimes that could result in a huge financial payout to the West Coast policyholders, said Gary Fontana, an attorney with the San Francisco firm Thelen Reid & Priest that is representing the California insurance commissioner.

"What I believe is going on is the French have said to the Justice Department'Don't make us plead to any of the crimes we are accused of in California because if we do, we may end up owing the policyholders hundreds of millions or perhaps billions of dollars,'" said Fontana.

"Suggestions by interested parties of how one case ought to come out in order to benefit their interest in another case are not particularly helpful," said Terwilliger. "Our position in general about related litigation is that each case presents unique issues and ought to be decided on its own merits."