Credit Suisse In Court Over Loans To Luxury Resorts

Yellowstone Club (AP)
The Yellowstone Club.

BILLINGS, Mont. (AP) — Attorneys for Credit Suisse are due in federal court Thursday over accusations that the international banking giant arranged hundreds of millions of dollars in predatory loans with the goal of taking over luxury resorts in Montana, Idaho, Nevada and the Bahamas.Plaintiffs backed by the founder of Montana’s ultra-exclusive Yellowstone Club, Tim Blixseth, are seeking billions of dollars in damages.

They claim Credit Suisse set up an offshore branch to skirt U.S. lending rules as part of a “loan to own” scheme, in which resorts were appraised at inflated prices then given loans they could not repay to force them into foreclosure.

Credit Suisse contends the lawsuits are baseless — and motivated in part by Blixseth’s attempt to escape blame for the Yellowstone Club’s financial problems.

Blixseth, who lives in Washington state, pocketed more than $200 million out of a $375 million loan Credit Suisse lined up for the club in 2005.

“Blixseth’s claims have moved from the implausible to the absurd,” attorneys for Credit Suisse wrote in a motion to have him blocked from participation in the case. “Blixseth now seeks to blame Credit Suisse for lending him too much money, which he then frittered away for his own personal benefit.”

The lawsuit also targets real estate consulting firm Cushman & Wakefield. The New York-based firm provided Credit Suisse with the disputed property appraisals.

As with Credit Suisse, Cushman & Wakefield is expected to argue for the case to be dismissed in a Thursday hearing before Magistrate Judge Ronald Bush in U.S. District Court in Boise, Idaho.

The other properties named in the suit are Idaho’s Tamarack Resort, Nevada’s Lake Las Vegas and Ginn Sur Mer in the Bahamas. All four went bankrupt after they received a combined $1.8 billion in loans through Credit Suisse.

The lawsuit was first filed in 2010 on behalf of a group of resort homeowners, including Blixseth’s son, Beau. Tim Blixseth was not among the original plaintiffs but has acknowledged he is behind the litigation. The case is being fought by a team of his attorneys.

“Nobody was standing up for the 3,000 homeowners in the four resorts,” Blixseth said. “They were severely damaged by Credit Suisse and Cushman Wakefield. The least I could do as one of the developers was stand up for those people.”

A federal bankruptcy judge in a separate case has said Blixseth bears much of the blame for the Yellowstone Club’s collapse, and in 2010 issued a $40 million judgment against the 61-year-old developer.

Blixseth has gone to lengths to get that judgment against him reversed or thrown out, including several failed attempts to remove or disqualify U.S. Bankruptcy Judge Ralph Kirscher from the still-lingering case.

His assertion that the $40 million judgment is invalid remains on appeal.

The presiding judge in the Boise case, U.S. District Judge Edward Lodge, last year rejected most of the original claims against Credit Suisse, including allegations of racketeering, fraud and negligence. All eight claims against Cushman & Wakefield were dismissed.

But Lodge ruled the case against Credit Suisse could proceed on claims including conspiracy and breach of fiduciary duty. The plaintiffs have since amended their lawsuit to take another shot at the defendants.

Tamarack developer Alfredo Miguel has joined with Blixseth in an attempt to intervene as parties in the case. If they succeed, that could undercut defence arguments that there was no direct harm to the homeowners from the resort loans since they were issued to the developers.

Blixseth also wants to bring back the racketeering claim that was rejected by Lodge.

The plaintiffs have alleged damages of $8 billion. But that amount could be tripled under federal law, to $24 billion, if the racketeering claim is revived.