THE FRENCH banking giant's bailout of California-based Executive Life Insurance Company (ELIC) was called “superb” by state officials in 1991, but by 1999 investigations revealed a scheme by which the bank profited through concealed ownership. Like many 1980s investors looking for dramatic gains, ELIC had invested heavily in junk bonds: high-yield, high-risk bonds issued by companies that are likely to default. Using junk bonds to fund corporate takeovers and restructuring had fueled the rise of investment house Drexel Burnham Lambert, which sold ELIC much of its portfolio. After Drexel Burnham collapsed, so did ELIC's investments, resulting in the largest insurance company failure ever.

California Insurance Commissioner John Garamendi chose Crédit Lyonnais's offer over that of a San Francisco-based group because the French company promised a four-cents-on-the-dollar ...

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