Brouhaha raging over who gets First Executive spoils.

Have financiers suckered the state out of $1 billion?

Did the French-backed New York financiers Craig Cogut and Leon Black, buyers of bonds from the collapsed First Executive Corp. insurance empire, outsmart state Insurance Commissioner John Garamendi to the tune of $1 billion -- thus depriving policyholders and others of their rightful bounty?

And is the Mutuelle Assurances Artisanale de France ready to score another $900 million killing, by buying Executive Life, the California life insurance subsidiary of First Executive?

And will Garamendi's plan to rehabilitate the insolvent Los Angeles-based Executive Life Insurance Co., now before the state Court of Appeals, be torn asunder by Judge Norman Epstein in a ruling expected no later than St. Patrick's Day?

The answer to all three questions, say some, is "yes."

But others say "stay tuned" -- the Cogut-Black buyout is still in the embryonic stages profit-wise, while Garamendi's plans are basically fair and will likely survive judicial scrutiny.

In all, it's a billion-dollar brouhaha.

Bitter arguments have swirled around the Executive Life collapse, ever since founder Fred Carr stepped out his Wilshire Boulevard offices for the last time in April 1991, leaving First Executive Corp. bankrupt -- with ramifications for its California subsidiary Executive Life.

Nearly 400,000 Executive Life policyholders were left in the lerch in the biggest life insurance company crash in history.

Carr's insurance subsidiary had gorged itself on junk bonds, which plummeted in value in the late 1980s and early 1990s. By 1991, a policyholder run forced Commissioner Garamendi to seize the insurer.

The stocky, bushy-haired Black, 40, former executive at now-defunct brokerage house Drexel Burnham Lambert, popped up as key adviser to the French group Altus Finance, and offered $3.25 billion for $7.56 billion (face value) of Executive Life's junk bond portfolio in October 1991, or about 43 cents on the dollar of face value. Cogut, a former lawyer for Drexel Burnham Lambert, also emerged as a lead adviser to Altus, an arm of the big French bank Credit Lyonnaiss.

(For whatever reason, Black and Altus have become linked in the media, although some insiders have said Cogut plays a lead role. In any event, the team is often referred to as Altus-Black.)

The Altus-Black deal was blessed by Garamendi and sanctioned by the courts. The $3.25 billion in cash went into Executive Life's coffers, as part of a larger plan to resuscitate the floundering insurer.

The idea was that Executive Life -- minus its junk-bond portfolio and with the $3.25 billion in new cash -- could sally forth. Generally speaking, the 400,000 policyholders would get about 72 cents for every dollar they had invested into Executive Life policies.

With benefit of hindsight, it looks like Altus-Black scored magnificently in dealing with Garamendi, a former state senator from the Sierra foothills who has hinted at running for governor (Garamendi has already run for governor once, and also once for U.S. Congress).

Since the Altus-Black buyout, junk bonds have rallied, and paid handsome interest.

Indeed, Black made such a good deal that even ex-junk bond king Michael Milken, who has made a few good deals himself, termed the Altus Finance purchase "the investment opportunity of the decade," in a 1992 jailhouse interview with Forbes magazine.

One way to look at it: If the Altus-Black portfolio has appreciated on par with the rest of the junk bond market since October 1991, it would be today worth about $4.2 billion to $4.9 billion -- about a $1 billion to $1.65 billion gain.

Some say the gain could be even larger, as Black has gained control of entire companies through bond positions. And according to a study by Century City-based Houlihan Lokey Howard & Zukin, a corporate evaluation outfit, securities which grant control are worth 30 percent more than mere "passive" stock or bonds.

The Altus-Black bonds, many in default, have been converted into equity in several cases -- giving Altus-Black control -- and there may be 20 such companies in the Altus-Black portfolio, according to analysts cited by the Wall Street Journal.

A spokesman for Altus Finance last week declined to say how many companies Altus could end up controlling -- for two years, Altus-Black has consistently dodged questions on the issue -- and Black himself is not talking.

But a lawyer close to the deal said, "Many of the bonds in the portfolio are thinly traded, or not traded. Some have been converted into equity, in companies the value of which is hard to determine. It is too soon to say what the portfolio is worth."

Another Garamendi backer said the Altus-Black bid was just that -- albeit, a winning bid -- and others could have offered more cash for the portfolio of junk bonds, but no one did, said Bill Schulz, spokesman for Commissioner Garamendi.

"Hindsight is 20/20. But if you go back to the period when the bidding for the bonds went on, there was active bidding, and Altus won," said Schulz. "The value of the bonds was very volatile."

Schulz added that Altus-Black bought "the junk of the junk," creating a much more stable Executive Life.

Still, no one denies that Black was uniquely qualified to make a nervy bid for the junk-bond portfolio. He had himself put together a number of the bonds when he worked at Drexel and, prior to First Executive collapsing, Black had combed through the insurer's portfolio looking for bonds to buy, and in fact did buy $185 million of Gillett Holding bonds in 1991 from First Executive.

Additionally, Black had his network of friends among the ex-Drexelites, who were able to give him details on many bonds.

Interestingly, at one point Garamendi had structured a deal with Altus-Black that certain "excess" profits would be funneled back to policyholders. But that provision was dropped, after Black-Altus increased its bid from $2.7 billion to the winning $3.25 billion in October 1991.

Yet even a Altus-Black insider conceded, "The portfolio will probably be worth $2 billion more after Black manages it."

Is it too late for Garamendi to rescind the bond sale to Altus-Black?

One insider-lawyer thinks so. "My understanding is that this is a done deal," he said. "No one is even talking about unwinding it."

Schulz in the commissioner's office concurs.

Still, a group loosely connected to Altus Finance, the French Mutuelle Assurances Artisanale de France (MAAF), is a hopeful buyer for Executive Life -- that's the deal before Judge Epstein in the Court of Appeals. (Garamendi's rehabilitation of Executive Life must be approved by the state courts.)

Garamendi could cut a deal with MAAF, based upon a related understanding on the Altus-Black portfolio, said some analysts.

"By rattling his sabre, Garamendi might be able to garner a portion of the (Altus-Black) profits back to the policyholders," said Jack Hersch, analyst with M. J. Whitman L.P., a New York brokerage specializing in distressed bonds. "Maybe enough to make everyone whole, including the mom-and-pop policyholders."

A similar vein found its way into a December 1992 Barron's (the national financial weekly) article, in which a headline stated, "If the bonds had not been sold (to Altus-Black), it appears there would have been enough assets to pay off everyone."

Investor Hersch is among the herd of analysts and others with stakes in a strange financial invention called muni-GICs, an acronym short for municipal investment contracts which can back municipal bonds.

To make a long story short, one might view Executive Life muni-GICs as annuities. Holders of muni-GICs say they are entitled to roughly equal treatment as ordinary Executive Life policyholders -- both had contracts with the Carr empire, and a contract is a contract.

Los Angeles Superior Court Judge Kurt Lewin disagreed, apparently after learning that muni-GICs had been trading in the nation's financial marketplaces (similar to bonds) for as little as 20 cents on the dollar -- and speculators had been buying.

Lewin, at Garamendi's behest, decreed that anyone buying a muni-GIC before April 1991 was entitled to be treated on equal terms to policyholders, but anyone buying after was a mere dealster, and was only entitled to 22 cents per face value of the bond, not 72 cents.

Executive Life had issued about $1.9 billion of the muni-GICs.

The odds-on betting is that Appeals Court Judge Norman Epstein, head of a tripartite panel, will give the Garamendi plan a thumb's down, at least on the muni-GIC matter.

The author of the December Barron's article, local lawyer Jack Friedman, also wrote that the Southland legal establishment was "astonished" by Lewin's creation of two tiers for muni-GIC holders.

Mitch Julis, an investor with Canyon Partners in West Los Angeles, said, "Lewin's decision is totally ill-conceived. There is no legal basis for it. He just doesn't like the vulture-fund types (speculators) making money. It's a moralistic stand, not a legal stand."

Schulz, speaking for Garamendi, said he expects the appeals court to uphold the Lewin decision.

A financial problem confronting Garamendi and the courts: Since the now-lucrative junk bond portfolio has been sold to Altus-Black, there is not enough money to go around for both the policyholders and the muni-GIC holders.

If the muni-GIC holders prevail before Judge Epstein and get treatment equal to the policyholders, then both policyholders and muni-GIC holders will get only about 62 cents on the dollar invested -- unless somehow the sale of the junk-bond portfolio to Altus-Black can be torpedoed.

Julis said Epstein can blow the whole Executive Life deal, including the Altus-Black buyout, back to square one. "He can make the whole thing subject to a new auction process," said Julis. By his reckoning, the whole Executive Life deal is subject to judicial review, and the appeals court has that power of review.

Another issue before Epstein is MAAF's buyout price of Executive Life.

By calculations of some of the muni-GIC holders, the value of Executive Life's cash and bond portfolio has risen sharply since MAAF's $1.49 billion bid for Executive Life in October 1991.

They insist the extra money should be funneled back to policy- and muni-GIC holders. "There's $900 million in there, and Garamendi is just giving it to the French," said Hersch, citing his analysis of First Executive's balance sheet.

Schulz in Garamendi's office said that a new deal, announced Feb. 10, will result in a higher MAAF bid, if the underlying assets have appreciated.

But ultimately, said Schulz, "We are all waiting on (Appeals Court Judge) Epstein's ruling."