BOISE, Idaho – Two prominent resort developers are suing Credit Suisse, the giant Swiss bank, for $2.5 billion, with the potential for triple damages that could reach $7.5 billion. The complaint, filed in federal court in Idaho, accuses Credit Suisse AG and Cushman & Wakefield, the real-estate firm, of fraud, RICO conspiracy charges, negligence and breach of fiduciary duty.
Resort developer Tim Blixseth, the founder of the Yellowstone Club in Montana, filed suit along with Alfredo Miguel, a founder of the Tamarack Resort in Idaho. They are seeking to join a multi-billion-dollar class-action lawsuit previously filed against Credit Suisse and related firms.
The initial lawsuit was filed in January 2010 on behalf of homeowners, property owners and other investors who lost billions of dollars at luxury resorts including Tamarack, the Yellowstone Club, the Lake Las Vegas Resort and development in Nevada and the Ginn Sur Mer Resort in the Bahamas. U.S. Magistrate Judge Ronald E. Bush ruled in January 2011 that the plaintiffs could proceed with their lawsuit against Credit Suisse. Now, developers Blixseth and Miguel are seeking to join that ongoing suit.
“Proposed Intervenors [Blixseth and Miguel] were defrauded by Defendants in much the same way that the existing plaintiffs were defrauded,” the complaint states. “Credit Suisse through its loans to the Yellowstone Club and Tamarack, and Cushman & Wakefield through its inflated appraisals of the resorts, created a parade of horribles for Proposed Intervenors and the existing plaintiffs.”
Blixseth, of Blixseth Group of Washington, Miguel and the property owners accuse Credit Suisse of operating a “predatory” loan scheme.” that artificially inflated the value of resorts to saddle them with enormous and unsustainable debt. The bank earned tens of millions of dollars in fees in the process, “with the expectation that Credit Suisse would foreclose on, or use the non-performing loan to obtain ownership of the Resort at a cost significantly below market value,” the original suit states. All four resorts defaulted on their loans, and Credit Suisse tried to buy the properties at massive discounts.
Credit Suisse set up a Cayman Islands branch to market its syndicated resort loans. As U.S. Bankruptcy Judge Ralph Kirscher observed, Credit Suisse used the island branch–little more than a mail drop–to appraise the private resorts at grossly inflated values. The bank used a “total net value” appraisal method that Judge Kirscher ruled did not comply with the Financial Institutions Recovery Reform Act of 1989, or FIRREA.
“The naked greed in this case combined with Credit Suisse’s complete disregard for the Debtors or any other person… shocks the conscience of this Court,” Judge Kirscher wrote in a blistering rebuke. “While Credit Suisse’s new loan product resulted in enormous fees to Credit Suisse in 2005, it resulted in financial ruin for several residential resort communities. Credit Suisse lined its pockets on the backs of the unsecured creditors.”
The investors also have sued Cushman & Wakefield, the appraisers who used the “total net value” method.
In the new complaint, lawyers for Blixseth and Miguel lay out Credit Suisse’s many deceptions. “Had Mr. Blixseth known that Credit Suisse’s loan was grossly inflated, unlawful or of Credit Suisse’s true intentions, Mr. Blixseth would never have engaged in the transaction with Credit Suisse. As it turned out, Credit Suisse perpetrated a fraud on Mr. Blixseth and the Club and then compounded its fraud by using the bankruptcy proceedings for its own profit and to breach its obligations to not seek repayment of the loan from Mr. Blixseth personally,” the complaint states.
Regarding Alfredo Miguel, the complaint adds: “Mr. Miguel’s claims involve, in part, how Credit Suisse breached its duty of good faith and fair dealing when it demanded to meet with Mr. Miguel privately and insisted that Mr. Miguel not bring his attorneys, and then during the meeting Credit Suisse through Highland Capital extorted Mr. Miguel with threats of criminal prosecution and unorthodox collection practices unless Mr. Miguel acceded to Credit Suisse’s settlement demands.”
“Ill-Gotten Financial Gains”
Credit Suisse, the second largest bank in Switzerland, has a long history of wrongdoing. It refused to release the assets of Nazi Holocaust survivors until decades after the end of World War II. And last year the bank admitted to the U.S. Justice Department that it had illegally helped Iran, Sudan, Libya and other sanctioned nations move hundreds of millions of dollars, for more than a decade, in violation of federal and state banking laws.
Credit Suisse forfeited a record $536 million as part of deferred prosecution agreements, a pattern of behavior that was laid bare in the Academy Award winning documentary “Inside Job.” “The criminal misconduct perpetrated by Credit Suisse in this case is simply astounding,” Attorney General Eric Holder said. “This case offers a stark and disturbing example of the lengths to which some corporate wrongdoers are willing to go in seeking ill-gotten financial gains.”
The class-action lawsuit proposes creation of a $600 million fund to help the creditors, laborers and small businesses harmed by the Credit Suisse loan, or $150 million for each of the four affected communities where the resorts are located.
The case is 1:10-cv-00001-EJL –REB, filed in US District Court in Boise, Idaho.