February 18, 2005: Headlines: COS - Ethiopia: Insurance: State Politics: Sacramento Bee: Dan Walters says: Is John Garamendi trying to bury mistakes on Executive Life?

Peace Corps Online: Directory: Ethiopia: Peace Corps Ethiopia : The Peace Corps in Ethiopia: February 18, 2005: Headlines: COS - Ethiopia: Insurance: State Politics: Sacramento Bee: Dan Walters says: Is John Garamendi trying to bury mistakes on Executive Life?

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Dan Walters says: Is John Garamendi trying to bury mistakes on Executive Life?

Dan Walters says: Is John Garamendi trying to bury mistakes on Executive Life?

Dan Walters says: Is John Garamendi trying to bury mistakes on Executive Life?

Dan Walters: Is John Garamendi trying to bury mistakes on Executive Life?
By Dan Walters -- Bee Columnist
Published 2:15 am PST Friday, February 18, 2005
The old saw about doctors burying their mistakes comes to mind as the nearly 15-year Executive Life Insurance saga closes.

It began in 1991 when John Garamendi, who had just become the state's first elected insurance commissioner, seized the failing company, one of the nation's largest pension insurers, and then resold it to some French investors, saying the sale would protect the firm's tens of thousands of retired and disabled annuitants.

It's ending now with Garamendi - back in the insurance post after other political career moves - agreeing to a relatively small, out-of-court settlement in a fraud suit against those to whom he sold Executive Life so many years ago.

It turned out that the putative buyers were merely fronts for a French government-owned bank that coveted Executive Life's fat portfolio of corporate junk bonds, which had been assembled by junk bond king Michael Milken. A Milken associate, who knew that the portfolio was really worth billions of dollars more than the price Garamendi was willing to accept, brokered the deal. The buyers made billions on the sale of the bonds while payouts to Executive Life's annuitants were squeezed.

When the true identities of the company's buyers were revealed, a years-long trans-Atlantic imbroglio ensued, eventually involving the highest officials of French and American governments. One of those who profited handsomely from the deal was a banker who was also one of French President Jacques Chirac's closest friends.

American authorities eventually filed criminal charges against the French bankers, because at the time of the sale it was illegal for a government-owned bank to own an American insurer. Garamendi's successor and predecessor as commissioner, Chuck Quackenbush, filed a civil case, which was still pending when Garamendi reclaimed the job in 2003. Meanwhile, Executive Life's policyholders organized themselves into a stubborn political pressure group that berated Garamendi, saying he had sacrificed their interests in his zeal to do a deal.

The criminal charges were resolved in return for a few hundred million dollars. This week, Garamendi agreed to take a few hundred million more from the chief civil suit defendant - an action that angered the annuitants even more.

For years, Garamendi had maintained that despite the flap over Executive Life's true buyers, the deal itself had been a good one for policyholders. But as the civil trial was about to begin in Los Angeles, his attorney said that, in fact, the policyholders had been damaged to the tune of perhaps $5 billion - a number echoed by the French defendants.

That statement was music to the ears of policyholders, but as the much-smaller, out-of-court settlements were being finalized this week, their anger at Garamendi exploded anew.

"We are shocked and outraged that the largest financial fraud in California history would be settled for so little and without even a fight," Sue Watson, a co-founder of the group, said in a prepared statement. "How can the commissioner now settle for less than $600 million?"

Garamendi spokesman Norman Williams was defensive, saying, "In any trial, there's a risk you could lose, or even if you get an award, that award could be tied up in court for years."

The policyholders want the state Legislature to investigate - and they are on solid ground. Despite the flap over the buyers' identity, the more vital issue is whether Garamendi, in his eagerness to do the deal, undervalued the company by billions of dollars, thereby damaging the financial security of thousands of policyholders.

Garamendi cannot simultaneously assert that the sale was a good deal and a multibillion-dollar fraud, and then defend a cents-on-the-dollar settlement that left the buyers with billions of dollars in windfall profits. It just does not make sense.

Since there apparently will be no trial to lay out the facts, it's up to the Legislature to fill in the blanks. Were Quackenbush or another Republican involved, Democratic lawmakers, who portray themselves as friends of consumers, would be clamoring for audits and hearings. Will they subject Garamendi's actions to the same scrutiny, or will the truth be buried?

When this story was posted in February 2005, this was on the front page of PCOL:

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Story Source: Sacramento Bee

This story has been posted in the following forums: : Headlines; COS - Ethiopia; Insurance; State Politics



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