PARIS -- Some battles you lose, even if you win. For the French co-defendants, the Executive Life case may be one of those battles. Executive Life was a California insurance company that bellied up and was sold in 1991 by the state insurance commissioner to French investors, who subsequently derived enormous profits from the company's junk-bond portfolio. Now those investors face the possible creation of a trial record -- resulting in public disclosure that may loom as large for some of them as the potential loss of billions of dollars.

Last year the California Insurance Commissioners office filed suit to force a cluster of French and Swiss financial entities, grouped around the scandal-tinged Cridit Lyonnais bank, to cough up their estimated $2 billion gains from "a joint venture to fraudulently and wrongfully obtain the assets" of Executive Life. An amended complaint, filed Jan. 21 in the U.S. District Court of Los Angeles, widened the conflict to include the rising star of French finance, Frangois Pinault. That makes the case what the French call "an affair of state," and not only because investigators from the Federal Reserve Bank of New York and the Department of Justice are also looking into it.

The Executive Life affair crystallizes the uniquely incestuous relationship between France and the private sector, a relationship that is under severe pressure as globalization breaks down the walls around protected national economies. When the deal began, Cridit Lyonnais belonged to the state, and Pinault was a provincial industrialist eager to break into the closed world of Parisian finance. Cridit Lyonnais gave him the loans necessary for his acquisitions and eventually took him onto its board, offering him higher and wider contacts in the Parisian elite than he could otherwise have attained.

Unlike some of the Cridit Lyonnais other raider protigis -- Giancarlo Parretti (the man who looted MGM) and Bernard Tapie (lately recycled as an actor after serving a prison sentence for tax fraud) -- Pinault emerged clean from the scandals that headlined the banks crash in the mid-1990s. He is no longer on the board, but one of his key employees is.

Pinault now ranks fifth among "the worlds working billionaires," according to Forbes magazine, with a personal fortune estimated at around $6 billion. His friends include French President Jacques Chirac, who personally called on Pinault to buy and "shelter" the prominent center-right news weekly Le Point from a takeover by the left in 1997, according to an unauthorized biography by Pierre-Angel Gay and Caroline Monnot. (Their book, "Frangois Pinault, Milliardaire," was dropped by its first publisher, ostensibly for reasons that have nothing to do with Pinaults ownership of the FNAC department store chain, which accounts for about one-quarter of the retail book trade in France.)

Pinaults other assets include the auction house Christies, the Italian luxury house Gucci (which he wrung away from competing French finance star Bernard Arnault last fall), and a 15 percent stake in Frances dominant TV network, TF1. Those properties -- and canny investments such as bestselling author Bernard-Henry Livys two money-losing feature films -- place him at the power center of French cultural life. His recent acquisition of Aoba Life Insurance in Japan, aside from demonstrating a sharp eye for value -- he picked up a company with $120 billion in assets and $650 million in turnover for about $220 million -- gives him a platform to expand in Asia. But his declared priority for future investments is the United States, where he already owns the Converse sneaker company and the Samsonite luggage firm.

What, exactly, are he and the other defendants supposed to have done? California claims that the Executive Life buyout was secretly directed by Cridit Lyonnais, in violation of state and federal banking and disclosure laws, which at the time forbade ownership or control of insurance companies by banks (let alone a bank owned by France). Moreover, as a Parisian bank analyst who requested anonymity comments: "When you look at the people involved in the deal, and you know the links between them, there are grounds to suspect parking" -- an illegal practice on both sides of the Atlantic, in which one or more investors serve as fronts for a party who wants to avoid disclosure of the investment. Californias lawyers claim the French did just that.

As it happens, another co-defendant, Jean-Frangois Hinin, formerly known around Paris as "the Mozart of finance," is reported by Gay and Monnot to have managed the Executive Life junk-bond portfolio for both Cridit Lyonnais investment firm, Altus, and Pinaults holding company, Artimis. (Both companies are named as defendants in the case.) According to Karl Belgum, one of Californias attorneys, the Americans have obtained "five different versions" of a parking contract between the Cridit Lyonnais and its alleged fronts, each tailored to a specific investor. "Theres a large number of them floating around," he adds.

But Californias lead attorney, Gary Fontana, admits that Pinault's name isn't on them. "Pinault's problem was that he was aware of the agreements and went in anyway," says Fontana. "He made various filings with the Department of Insurance, and failed to disclose the agreements." Maybe, but Fontana does not yet have hard proof of that.

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 didnt say.) Artimis released a statement refuting Californias complaint point by point: "Artimis provided in all transparency all of the facts requested (by Californias insurance commissioner, and thus) had no reason to suspect irregularities could appear. ... Artimis 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, Artimis didnt 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 Cridit Lyonnais and its syndicate, only that Artimis had knowledge of them. (Pinaults 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 Cridit 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 Artimis, 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.

Cridit 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 (Cridit 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 -- Cridit Lyonnais warns that there may be "penal responsibilities" to share -- that will not interfere with the banks future development. Nor will the financial bite of losing the case, which will be borne by the state-engineered consortium that inherited Cridit Lyonnais debts, and ultimately by French taxpayers. They have already paid $20 billion to cover the dreadful investments made by the banks 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 Cridit Lyonnais license to operate its New York branch, which contributes a disproportionate share of the banks 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 banks archives were destroyed by arson. What we do know is that Cridit 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.

Pinaults 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 Artimis 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 Pinaults 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 didnt 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.