Prosecutor nears end to inquiry of Credit Lyonnais. (Up Front).

Federal prosecutors, nearing the end of the investigation of Credit Lyonnais and others involved in the 1992 purchase of defunct Executive Life Insurance Co., will propose a deal within weeks that could result in criminal fraud charges or cash settlements, according to sources close to the case.

Attorneys representing individuals and businesses that may face charges, including Credit Lyonnais, have been given a final opportunity to make a case against prosecution, according to these sources. The settlement offers could come within two months.

Attorneys for Credit Lyonnais in Washington have been negotiating with federal prosecutors, sources said, and if the government's proposals are not accepted, the company could be indicted on criminal charges.

"Flash forward a month or two, and there's going to be a big story," said one source. "Either the French bank admits wrongdoing and pays 'x' million dollars, or the U.S. indicts the French bank."

George Terwilliger, a partner at White & Case in Washington representing Credit Lyonnais, declined to comment, as did Assistant U.S. Attorney Jeffrey Isaacs, lead prosecutor in the investigation.

But according to a source involved in the conversation, Isaacs said in late October that he is "wrapping up (the investigation), and it is going to a conclusion."

Another source said, "The U.S. Attorney's office is saying the matter has come to a head and is in its last month."

Federal prosecutors began investigating Credit Lyonnais after it was revealed in 1998 that the bank secretly acquired the assets of Los Angeles-based Executive Life from the state in 1992 by using straw companies. At that time, federal law prohibited banks from owning insurance companies.

The entities that acquired Executive Life failed to report their affiliation with Credit Lyonnais to California regulators, who took possession of the insurance company's junk bonds and other assets in 1991. At the time of the purchase, Executive Life had lost money on a $6 billion portfolio of junk bonds and customers were cashing in policies.

Several civil lawsuits, including one filed by the California Attorney General's office, estimate that Credit Lyonnais saw millions of dollars in profits from the sale of Executive Life's junk bonds. The purchase ultimately led to losses for more than 300,000 Executive Life policyholders.

Last month, members of California's congressional delegation urged the Department of Justice, which became involved in the case earlier this year, to prosecute the French bank rather than propose a settlement. They also asked why the investigation was taking so long.

A spokesman for the Department of Justice declined to comment on the investigation.

Sources discount any political pressure influencing local prosecutors, who are now heading the investigation.

"They wouldn't bring a case unless they were ready to do so," said one source. "I know the matter has been actively under investigation for quite a while. There really is very little else to do. They've completed their investigation, and have been discussing with lawyers about a possible resolution. I have a feeling there will be an offer soon."