Opinion ID: 1268811
Heading Depth: 2
Heading Rank: 1

Heading: Altus/MAAF Group Conspiracy to Acquire ELIC's Assets

Text: After a competitive bidding process in October 1991, the Commissioner received eight bids, three of which merited full consideration: a joint bid by Altus Finance S.A. (Altus), a subsidiary of Credit Lyonnais S.A. that was controlled by the French government, and the MAAF Group, a consortium of French and Swiss insurance companies; [4] a bid from the National Organization of Life and Health Insurance Guaranty Associations; and a bid by Sierra National Insurance Holdings, Inc. (Sierra). The NOLHGA and Sierra bids were bonds-in, meaning that the ELIC junk bond portfolio would remain in the rehabilitated insurance company. In contrast, the Altus/MAAF Group bid was bonds-out: Altus would purchase the junk bond portfolio for cash, and the MAAF Group would manage the rehabilitated insurance company without the risk associated with continued ownership of the junk bond portfolio. On October 24, 1991, the Commissioner conditionally accepted the NOLHGA bid, but he identified several serious legal issues and potentially grave problems that NOLHGA would have to cure before its bid could be approved. NOLHGA responded to the Commissioner's demands on November 4, 1991; however, the Commissioner formally rejected the NOLHGA bid two days later, identifying numerous specific defects in the bid. On November 12, 1991, Sierra submitted a Memorandum to the Commissioner, asserting that it had reason to believe that Credit Lyonnais and Altus maintained actual control of the MAAF Group in violation of California Insurance Code Section 699.5. In 1991, Section 699.5 prohibited entities controlled by foreign governments, like Credit Lyonnais and Altus, from obtaining certificates of authority from the Department of Insurance to conduct business in California. [5] In response to the Memorandum, the Commissioner requested assurances from Credit Lyonnais and Altus that they did not in fact maintain secret control over the MAAF Group. The Commissioner received those assurances and conducted no further investigation. In fact, however, Altus had entered into a conspiracy with the members of the MAAF Group to circumvent the prohibition on foreign control of California insurers in Section 699.5. Altus and the MAAF Group agreed to bid for the assets of the ELIC Estate with the understanding that the MAAF Group would organize and appear to own New California Life Holdings (NCLH), a newly formed corporation that would reinsure ELIC insurance policies. The MAAF Group, however, would operate NCLH for the benefit of Altus, not its members. The terms of the secret agreements were memorialized in French-language contrats de portage. On November 14, 1991, the Commissioner determined that a revised $3.25 billion cash bid from the Altus/MAAF Group was superior to the Sierra bid and recommended selection of the Altus/MAAF Group bid to the Rehabilitation Court. The next day, Altus and MAAF executed a Management Agreement that obligated MAAF, in its capacity as a shareholder of NCLH, to act on behalf of Altus ... and as its agent to help it to implement its strategic decisions. Altus and MAAF agreed not to disclose the agreement to third parties. On December 26, 1991, the Rehabilitation Court approved the Altus/MAAF Group bid, and the sale of the assets of the ELIC Estate was formalized in a written contract entered between the Commissioner and the Altus/MAAF Group (the Rehabilitation Plan). Under the terms of that contract, ELIC insurance policies assets would be transferred to a new insurance company, Aurora National Life Assurance Company (Aurora), a subsidiary of NCLH controlled by the MAAF Group. Third parties challenged the sale in the Rehabilitation Court. The Commissioner advised the Rehabilitation Court that the ELIC Estate's continued ownership of the junk bond portfolio would jeopardize the security of existing ELIC policies because of the risk associated with those junk bonds. In order to expedite the sale of the junk bonds, the Commissioner requested that the Rehabilitation Court sever the sale of the junk bond portfolio from the sale of the ELIC Estate's insurance assets. On February 18, 1992, the Rehabilitation Court granted the Commissioner's request. After accepting bids from third parties, the Rehabilitation Court approved the sale to Altus, the highest bidder, for approximately $3.25 billion in cash. In May 1992, the California Department of Insurance (DOI) issued a certificate of authority to Aurora, allowing it to operate as a life insurance company in California. On August 13, 1993, the Rehabilitation Court approved the Rehabilitation Plan and denied motions to rescind the sale of ELIC's junk bond portfolio to Altus. ELIC's insurance policies were transferred to Aurora in September 1993. [6] Aurora subsequently brought a tax indemnity claim against the ELIC Estate, which the Commissioner settled for $75 million.