A federal jury in Los Angeles has held a French company liable for defrauding California regulators in connection with a deal involving the failed Executive Life Insurance Company.[@@]

The company, Artemis S.A., Vincennes, France, is owned by French billionaire Francois Pinault, who was personally cleared of any involvement by the jury.

The jury, however, found in favor of Artemis on 2 of 3 allegations that the company had caused harm to Executive Life policyholders.

The state is seeking $1 billion in damages, but the phase of the trial just concluded focused on an assessment of the allegations and did not look at damages.

U.S. District Judge A. Howard Matz is encouraging the parties involved in the case to reach a financial settlement rather than take the trial to a penalty phase.

California Insurance Commissioner John Garamendi has hailed the outcome of the trial as one “that vindicates our longstanding position.” The verdict shows the jury has rejected the idea that the commissioner’s office knew of the scheme before it was uncovered, Garamendi says.

The trial capped a complex tale going back to 1991, when California regulators took over the foundering Executive Life. A year later, Garamendi, who was serving his first term ase commissioner, sold Executive Life’s junk bond portfolio for $3.25 billion to an investor group. The state alleges that the investor group was secretly financed by Credit Lyonnaise S.A., Paris, a bank that was controlled by the French government.

The junk bonds later soared in value and the state sued the French investors, claiming they had conspired to violate a California law that at the time prohibited foreign governments from owning insurers in the state as well as a U.S. law banning banks from owning more 25% of a non-banking business.

Most of the original parties in the case, including Credit Lyonnais, reached a $600 million settlement in February, leaving Artemis as the only defendant.

In February, a group of Executive Life policyholders called on Garamendi to resign for settling for just $600 million in compensation for the loss of nearly $4.5 billion in policyholder assets.