A CALIFORNIA LAWSUIT MAKES PARIS TREMBLE | PAGE 1, 2

The Paris press has largely abstained from digging into the affair. Pinault, however, has
responded as though to a serious threat, promising to "strike back hard" in an interview with
the Wall Street Journal. (How, he didn’t say.) Artémis released a statement refuting
California’s complaint point by point: "Artémis provided in all transparency all of the facts
requested (by California’s insurance commissioner, and thus) had no reason to suspect
irregularities could appear. ... Artémis participated in no other agreement besides the
acquisition contracts, signed with the vendors (of the junk bonds), which were revealed to the
(California) Insurance Department."

There follows a curiously precise statement: "In fact, Artémis didn’t even exist at the moment
when the agreements mentioned in the (lawsuit) were signed." This is not a denial that there
were illegal agreements between Crédit Lyonnais and its syndicate, only that Artémis had
knowledge of them. (Pinault’s spokespeople at the Paris public relations firm Image 7 did not
return repeated calls for comment.)

And that is not exactly how Gay and Monnot reported the deal, months before Pinault became
a defendant. As they tell it, in 1992, when the bank was desperate to find investors for the
Executive Life portfolio, Pinault agreed to buy in, but only on condition that Crédit Lyonnais
loan him the $1.5 billion or so he needed for the deal. In exchange, the bank got 25 percent --
and no control whatsoever -- of Artémis, into which Pinault folded his previous holding
company. "It was as though the bank agreed to throw away the power that it could
legitimately command (over Pinault)," note Gay and Monnot.

Crédit Lyonnais is trying to deal its way out of the jam. Last May, as France prepared to sell
its controlling stake in the bank, its directors issued a bone-dry analysis of their exposure:
"This affair principally implicates certain former managers of Altus and the Group (Crédit
Lyonnais) ... at least one current executive of the Group knew after the fact about information
related to the practices charged in the Executive Life case."

In other words, if heads must roll -- Crédit Lyonnais warns that there may be "penal
responsibilities" to share -- that will not interfere with the bank’s future development. Nor
will the financial bite of losing the case, which will be borne by the state-engineered
consortium that inherited Crédit Lyonnais’ debts, and ultimately by French taxpayers. They
have already paid $20 billion to cover the dreadful investments made by the bank’s managers
in the recent past, and may well cough up a billion or two more.

The greatest risk the bank faces is that investigators at the Federal Reserve will conclude that
the U.S. government should yank Crédit Lyonnais’ license to operate its New York branch,
which contributes a disproportionate share of the bank’s worldwide profits. (Both the Fed and
the Securities and Exchange Commission refused to comment on the case.)

Some in the international community think that would be overkill. "The allegations are of a
serious nature, and the Fed has wide latitude," notes a London-based bank analyst familiar
with the European banking sector. "But the bank has cooperated with the Americans. Its
strategies today are very different from its history, and would not give rise to this kind of
problem again."

That is a major change for what investigative journalist David McClintick once called "the
dirtiest bank in the world." No one will ever know all the malversations that went on there,
because in 1996, as French judicial investigators closed in, the bank’s archives were destroyed
by arson. What we do know is that Crédit Lyonnais, and with it the French banking sector,
has lost the chance to be "one of the three or five European leaders between now and 2005,"
says the London analyst.

Pinault’s personal exposure in the case, according to Fontana, is "somewhere north of $1

billion." But the greater costs to Pinault could also include unprecedented (for him)
disclosure. Anyone who reads SEC filings regularly is struck by the paucity of French
corporate disclosure, and holdings like Artémis are not bound even by those minimal rules.

Unlike France, where there are no written transcriptions of trial testimony (unless the
presiding judge orders one, which has happened three times in the past 15 years) and no
guaranteed legal access to case files for reporters, an American trial record could provide
more details on Pinault’s operations and assets than has ever been available. And California
has asked for a trial, which Fontana thinks could happen within two years, barring a
settlement.

Could the profits to be had on the Executive Life deal -- an estimated $450 million for Pinault
alone -- have sufficed to involve him in an illegal scheme? He has played close to the legal
edge before. After minority shareholders were screwed in one of his takeovers, and filed a
highly publicized lawsuit, French law was changed to ensure that raiders like Pinault pay the
same price per share to anyone owning a piece of the company.

But he has never been charged with a crime. It is, likewise, very hard to imagine that he
would play the stooge in a conspiracy he didn’t control, led by a bank he treated like a lackey.
But it would have taken a true visionary to imagine back in 1992 that an obscure California
official could someday make Paris tremble, if only in rage.
salon.com | Feb. 22, 2000