Perception vs. Reality
Executive Life: John Garamendi’s Mill Stone

By Geoff Metcalf
September 19, 2006

“Lying is like alcoholism. You are always recovering.” --Steven Soderbergh

Few people (other than the victims) remember what John Garamendi did and didn’t do as Insurance Commissioner 15- years ago with Executive Life.

Some 300,000-policy holders were ‘hosed’ when Garamendi sold Executive Live to a French government owned bank and a junk bond player. 

Elderly and handicapped policyholders were devastated while the bank and junk bond king made BIG bucks.

According to a California Republican Party paid ad, “Garamendi accepted contributions from lawyers who profited from the deal” and even took a six figure job from the lead investor’s partner.

Notwithstanding that California law forbids a foreign owned insurance company from owning insurers in California, despite court records and documents, Garamendi says he was ‘unaware’ a foreign government’s bank was buying the bonds for pennies on the dollar.

Like an old Chad Mitchell Trio refrain, “I didn’t know it all…I didn’t see a thing…You can’t hold me to blame…What could I do?” Garamendi claims to have been duped. He didn’t know what he didn’t know?

Partisanship aside, his response/defense suggests he wasn’t corrupt…merely incompetent.  His failure to do simple due diligence was epic.

When congressional hearings were held in 2002 into the Executive Life scandal by the House Government Reform Committee, Garamendi refused to testify.  Huh? This is the same guy who said he would create ‘the best consumer protection agency in the world’…but he refused to even show up and fight for policyholders before congress.

Dr. J. Harold Smith once observed, “More people would learn from their mistakes if they weren’t so busy denying them.” Amen!

The Executive Life scandal continues to stink 15-years after the fact.

The complexities of the Executive Life Insurance Company story are significant. However, it raises a gaggle of issues surround the smarts, decision-making skills, and character of Garamendi.

Garamendi sold the Executive Life portfolio for $3.25-Billion. That may sound like a lot of money, but is way less than what he could have (and should have) gotten on behalf of the victimized policyholders. The junk bonds eventually soared in value and were ultimately worth billions more…that the policyholders never saw.

State Senator Jackie Speier, Garamendi’s Democratic primary opponent, held hearings and requested a state audit of Garamendi’s actions (and lack of actions) in Executive Life. The State Auditor is expected to release the audit sometime this fall. Don’t be surprised if it doesn’t happen until after the election.

Why did Garamendi settle out of court for chump change? His own staff reported that losses to Executive Life policyholders were over $4.5-Billion. A lawsuit filed by another insurance commissioned claims the losses were at least $4-Billion.  So why would Garamendi settle for less than $600-Million?

He says he was ‘duped’? Somebody was duped, but was it the favorite son Insurance Commissioner?  Did Garamendi ‘inadvertently’ violate state law to help those who were helping him at the expense of the thousands of policyholders to whom he had a fiduciary responsibility?

The fact that a politician who is known for attending ‘the opening of an envelope’ and aggressively seeking media attention, uncharacteristically never even held a news conference to discuss Executive Life is curious.

This “I was duped/I am a victim” stuff doesn’t cut it…especially by someone seeking the office of Lieutenant Governor.