Credit Suisse Executives Receive Subpoenas
Yellowstone Club founder goes after same bank that loaned Ginn $675 million that led to default.
NEW YORK, Sept. 15 [PRNewswire] — Thirty one senior officials of Credit Suisse, Switzerland’s second-largest bank, received subpoenas today demanding that they turn over internal documents that explain why they engaged in what a federal judge called "predatory lending practices" involving the exclusive Yellowstone Club resort in Montana. Credit Suisse brokered a similarly structured $675 million loan to the Ginn Company which went into default June, 2008.
Brady Dougan, the Chief Executive Officer of Credit Suisse First Boston, and Hans-Ulrich Doerig, Chairman of the Board of Directors, received the subpoenas along with past and current Executive Board officials and Credit Suisse’s Board of Directors.
Credit Suisse loaned $375 million to the Yellowstone Club resort in 2005, in an unorthodox and lucrative deal for the bank that federal bankruptcy judge Ralph B. Kirscher described in May as a case of "naked greed" that "shocks the conscience of this court." Tim Blixseth, the founder of the Yellowstone Club in Montana, subpoenaed the 31 Credit Suisse officials to try to uncover how and why the bank developed the syndicated loan scheme.
"Bank officials have testified that Credit Suisse created a Cayman Islands ‘branch’ in 2005 to sell these loans," Blixseth said. "In reality, there was no phone and no staff in the bank’s phony branch. They used the Caymans to circumvent U.S. banking laws and to issue inflated loans that Credit Suisse executives called a ‘gravy train’ in internal memos. Credit Suisse pocketed tens of millions in fees in the process."
As Judge Kirscher explained in a May Interim Order, Credit Suisse used the Caymans "branch" to skirt federal banking law and appraise the Yellowstone Club and other private resorts at grossly inflated values. The bank used a "total net value" appraisal method that Judge Kirscher ruled does not comply with the Financial Institutions Recovery Reform Act of 1989, or FIRREA.
When Blixseth owned the Yellowstone Club, he kept current on the Credit Suisse loan and never missed a payment. He said that when his ex-wife assumed ownership of the mountain resort in 2008, however, the Yellowstone Club quickly defaulted on the loan. It became a common occurrence at other exclusive U.S. resorts that also had taken the "Cayman Islands" loans, as Judge Kirscher wrote.
"Numerous entities that received Credit Suisse’s syndicated loan product have failed financially, including Tamarack Resort, Promontory, Lake Las Vegas, Turtle Bay and Ginn," Judge Kirscher wrote. "If the foregoing developments were anything like this case, they were doomed to failure once they received their loans from Credit Suisse."
Judge Kirscher found that Credit Suisse’s greedy executives only earned fees if they sold the hyped loans. "The higher the loan amount, the fatter the fee to Credit Suisse. This program essentially puts the fox in charge of the hen house and was clearly self-serving for Credit Suisse," Judge Kirscher ruled.
In a blistering rebuke to the bank, Kirscher added: "The naked greed in this case combined with Credit Suisse’s complete disregard for the Debtors or any other person or entity who was subordinated to Credit Suisse’s first lien position, shocks the conscience of this Court. 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."
Blixseth’s new subpoenas will unearth the internal documents Credit Suisse generated when devising their so-called "gravy train" loans. Judge Kirscher described those loans as examples of "predatory lending practices."
"In our ongoing discovery, we have had the opportunity to speak to many other Credit Suisse borrowers and their horror stories are shocking," Blixseth said. "The evidence indicates that this loan program was designed to fail — mostly through technical defaults — which in turn generated millions more in fees for Credit Suisse."
Source: Blixseth Group
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Finally
Now this is the real story!! This is where this entire mess that we are now in started. This is going to be the next Enron story. I bet the internal messages going back and forth do nothing but slap each other on the back for how smart they were.
This is going to end badly for these guys.
Make Ginn Answer
How about the $333 million distribution that Ginn and Crooks took from the $675 million Credit Suisse loan? What exactly did Ginn do with all that money? The whole bunch should be wearing prison attire.
Signed Elaine
Elaine
I am by no way defending Ginn or the rest of the guys out there that screwed over people with shady business practices. With that said, as long as their loan docs approved that money to be distributed then they didn’t do anything illegal. I recently saw a loan for a developer who actually had 2 Ferrari’s as part of the loan for the development of a shopping center. Is it right, No way. Is it illegal, nope.
Now if it wasn’t disclosed and they just took the money out of the loan without the lender knowing it then they are screwed.
Credit Suisse
What is interesting about the loan was Ginn-LA took out the loan June 06 by this time the writing was on the wall, they knew at this point Laurelmor was a bust, Tesoro and Quail West had also failed and in my opinion Ginn Sur Mer never had a chance. So if all this was true which I think is certain beyond doubt, Ginn-LA took out a loan they knew they could never pay back and almost acted as straw buyers to take the money and run. Sure they paid it for nearly 2 years but they had $675m they could afford to.
Luber Adler are the masters and Ginn merely a Puppet, the Puppet has now changed it’s name to Reynolds, but the Masters are still calling the tune, these guys are ruthless and are now planning the demise of Reunion, Hammock Beach and Bella Collina all at the expense of the owners who have lost everything, the places are being driven into the ground and will no doubt be bought out for cents on the dollar by Reynolds or some other entity backed by Lubert Adler, like they did in Laurelmor.
They are presently trying to negotiate the loan down in Reunion and no doubt Hammock Beach, in Reunion they have not even tried to sell a Condo for over 12 months to put pressure on the Banks.
But the good news is they will not get away with it the investigation has begun.
RE: Bankslayer
That is a very interesting post. What you say makes a lot of sense and I hadn’t considered the fraud taking place at that level. Very interesting but probably difficult to prove.
One point of clarification, you say that Ginn knew that Laurelmor was a bust by June 2006 but from what I can tell, they didn’t have their sales event until November 2006, after the loan was made. How is it that you believe they knew that project was a bust?
Thanks for the post. Interesting
Credit Suisse
Although the launch was later than June, they knew after the Quail West launch most people did not close, Tesoro mini launch had been a failure and generally nothing was moving anymore for them, the pot had dried up. Investors had by this time had enough of their broken promises and only the faithful few would buy in Laurelmor.
What happened to the ‘World Class’ Private Beach Clubs at Tesoro and Quail West and the ‘World Class Equestrian Center’ at Bella Collina, plus the Sports Center, it never happened and now owners are giving back lots/homes in their droves and lifeless Communities are left behind.
So in the end the Authorities will be looking to where the money went and in my opinion the answer will be to Lubert Adler’s investors. I think they have a lot of explaining to do. Bobby Ginn was under so much pressure to turn profits for Luber Adler’s investors that he was forced to do what he did to keep the money flowing, but like Madhoff eventually the money runs out and the scheme is uncovered and believe me it has been uncovered and the process is underway at the highest level, these people will lose their freedom of that I am convinced, even though they think they are bullet proof and above the law, they have a surprise in store.
RIGHT ON
hope you are right. crooks should be in jail asap
Curious
Does anyone know if there is enough room in the Federal Penitentiary system for all these guys? That would probably be a great use of the tax payer funded bailout money that has been handed out.
I hope these guys get their butts handed to them.
Reply to John
I think that Credit Suisse is in more danger than the borrowers of having committed a foul. Their use of an inappropriate appraisal method should raise questions of fraud and deceit with borrowers and those who provided the funds to Credit Suisse. Remember, it was not Credit Suisse’s money. They simply brokered the loan and collected huge fees. Ginn was only one of about half a dozen luxury resort developers who were brought into the lending scheme.