“It’s not a damage theory, it’s a fantasy,” Robert Weigel, Artemis’s lawyer, told a federal jury in Los Angeles today during his closing statement. “It is speculation.”
The jury will have to determine whether then-Insurance Commissioner John Garamendi “probably” would have accepted a bid in 1991 from an association of insurance guaranty companies for the assets of an insolvent California life insurance company had he known about a “conspiracy to defraud” by a group of French banks and insurers that bought the assets.
Weigel told the jurors that Garamendi publicly stated at the time that it would have been irresponsible to accept a bid that would have kept the junk-bond portfolio, which caused the insurer to collapse in the first place, in the rehabilitated company as was intended in the bid by the National Organization of Life and Health Insurance Guaranty Associations, or NOLHGA.
“Mr. Garamendi would never have doubled down on the junk- bond market,” Weigel said.
The case, which first went to trial in 2005, dates back to the 1991 sale of failed Executive Life Insurance Co. and its junk-bond portfolio to a unit of Credit Lyonnais SA and a group of French and Swiss companies organized and secretly backed by the French bank to avoid regulatory restrictions.
Artemis, the company through which Pinault controls PPR (PP) and its luxury goods brands including Gucci and Yves Saint Laurent, acquired part of the junk-bond portfolio in 1992 and a controlling stake in the rehabilitated insurance company. The company is the only one of the French defendants that hasn’t settled with the insurance commissioner.
The California insurance commissioner claims that Artemis is liable for all the damages caused by the French bank and insurers because it joined the conspiracy in 1992. The commissioner claims the profits the French investors made on the junk bonds should have gone to the policyholders.
The jury at the 2005 trial concluded Artemis had participated in the fraud against California insurance regulators by Altus and the MAAF Assurances SA group. The jury didn’t award any compensatory damages to the California insurance commissioner. A federal appeals court sent the case back for a retrial on a single theory of damages that hadn’t gone to the first jury.
“Today is the opportunity to go back in time and make things right,” Arthur Shartsis, a lawyer for the current insurance commissioner, Dave Jones, said during his closing argument today. “We had a wanton violation of the law.”
California is seeking as much as $4.33 billion in lost profit and interest that the French buyers made from the sale of the junk-bond portfolio. The jury will decide whether Artemis should pay interest on any damages and U.S. District Judge Gary Klausner will calculate the amount of interest, Shartsis told the jurors.
Weigel told the jurors that the commissioner’s theory assumes that the insurance company created under the NOLHGA rehabilitation plan would have made the exact same trades, at the exact same time for the exact same amounts in the junk-bond market.
“It’s easy to say now what you would have done 20 years ago,” Weigel said. “Mr. Pinault put his entire life savings in the bonds -- he took a huge risk.”
The case is Garamendi v. Altus Finance SA, 99-02829, U.S. District Court, Central District of California (Los Angeles).
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