Credit Suisse, Ginn Sur Mer, Yellowstone Club Lawsuit Advances

U.S. Magistrate Judge’s order recommends plaintiffs’ fraud (in part), breach of fiduciary duty, tortuous interference, negligence, and class allegations to proceed. Fed civil & criminal investigation.

Palm Coast, FL – February 20, 2012 – Friday, in the U.S. District Court of Idaho, U.S. Magistrate Judge Ronald Bush issued a Memorandum Decision and Order/Report and Recommendation in the $24 billion "Loan to Own" lawsuit against Credit Suisse and Cushman & Wakefield. Plaintiffs purchased property in one of four luxury resorts; Ginn sur Mer, Yellowstone Club, Lake Las Vegas and Tamarack Resort.
Bush’s Order recommends:

  • Plaintiffs’ Motion for Leave to Amend Third Cause of Action is granted. Plaintiffs are permitted to amend their pleading to assert a breach of fiduciary duty claim against C&W.
  • Plaintiffs’ fraud and negligent misrepresentations claims against CS and C&W should not be dismissed as to plaintiffs L.J. Gibson, Beau Blixseth and Amy Koenig.
  • Plaintiffs’ breach of fiduciary duty claims should not be dismissed.
  • Plaintiffs’ tortuous interference with contractual relations claims should not be dismissed.
  • Plaintiffs’ unjust enrichment claim should be dismissed with prejudice.
  • Plaintiffs’ negligence claims should not be dismissed.
  • Plaintiffs’ Consumer Protection Act violation claims should be dismissed with prejudice.
  • Plaintiffs’ class allegations should not be dismissed.
  • The Motion to Intervene filed by Timothy Blixseth (Yellowstone developer) and Alfredo Miguel (Tamarack developer) should be denied.
Three years ago, I noticed a similarity between Credit Suisse’s $375 million loan to Yellowstone Club in Big Sky, Mont., and the bank’s $675 million loan to Ginn-LA (Bobby Ginn and financial partner Lubert-Adler). Both had included multi-million dollar distributions directly to the respective developers. Ginn and Lubert-Adler got $330 million while Tim Blixseth received $209 million.
Credit Suisse had marketed its "Equity Recapitalization Loan Program" to the four luxury resorts and over a dozen others. All of the loans defaulted. The Yellowstone Club bankruptcy proceedings began to unravel what has become the basis for Gibson v. Credit Suisse and Cushman & Wakefield; the Loan to Own lawsuit. That lawsuit alleges a scheme whereby:
  • Credit Suisse approached luxury resort developers with their innovative loan product. Loans were marketed to be similar to home equity loans, supported by existing equity in the properties.
  • CS colluded with C&W to provide fraudulent appraisals that grossly overstated the value of the developer’s projects, knowing that the appraisals did not comply with federal and state lending laws; FIRREA and USPAP.
  • CS attempted to avert federal lending laws by originating the loans through a Cayman Island branch which consisted of a P.O. Box only. However, documents, emails, etc. link the activity to Credit Suisse First Boston.
  • CS earned millions in exorbitant fees for originating and administering the loans but avoided the risk by syndicating the loans to investors.
  • CS knew that the burden of the loans and distribution of significant portions of the loan directly to the developers would render the developments insolvent, guaranteeing that the loans would go into default.
  • By exercising its rights under the loan agreement, CS effectively took over the role of developer, forcing them into passive receivership and/or bankruptcy.
  • Using debtors in possession as proxies, CS would take over the projects for cents on the dollar while terminating the ongoing developer obligations to those who purchased property in the developments.
The lawsuit has continued to gain traction, as additional information was released, some as a result of other lawsuits against Ginn-LA and Tim Blixseth, including details of the fraudulent appraisals. Hand-in-hand with CS, C&W devised an innovative new appraisal methodology they called Total Net Value or Total Net Proceeds. The method used an undiscounted cash flow analysis of each property as if the amenities were already built and in place; basically, the developers sales projections. It was not an "as is" appraisal. It did not use comparable properties as a reference. It naturally yielded a high value. A C&W "whistleblower" has provided information supporting the plaintiffs’ assertions.
Judge Bush’s Order is not a decision upon the ultimate merits of any claims that are allowed to go forward. The plaintiffs will still have the burden to prove such claims, and the defendants will still have the opportunity to defend against those claims. But Bush’s Order is a strong signal that the defendants have much about which to be concerned. A forensic audit of emails related to the case has been approved beginning in April. Doubtless, discovery will make defendants increasingly uncomfortable.
Tim Blixseth’s Lawsuit
Tim Blixseth had filed a Motion to Intervene as plaintiff in the Loan to Own lawsuit where his son Beau Blixseth is a plaintiff. In previous arguments, the Court had signaled that the Motion might be denied because it would complicate the lawsuit at hand and because Tim Blixseth was free to file his own lawsuit. In anticipation of the denial of the Motion to Intervene, Blixseth began preparing his own complaint against Credit Suisse and Cushman & Wakefield. It was filed three days before Bush’s Order.
In his suit, Blixseth allegations follow closely those of the Loan to Own lawsuit. It also adds Dean Pauww, who performed the offending Total Net Value Yellowstone Club appraisal for CS.
Federal Civil and Criminal Investigation
Most interesting, in referencing the Loan to Own lawsuit, the Blixseth complaint reveals a "civil and criminal investigation into the Credit Suisse First Boston syndicated loans including the loans to Yellowstone Club and Ginn sur Mer currently pending before a Grand Jury in the Middle District of Florida in connection with which Plaintiff [Tim Blixseth] and the Class Action plaintiffs are providing evidence and have invoked their "Victim’s Rights" under applicable Federal Laws…"
This statement is the first public announcement of federal civil and criminal inquiries into the multi-billion dollar Credit Suisse Equity Recapitalization Loan Program.
Tim Blixseth says, "Where I came from in Oregon, a hand shake was better than a written contract. These days a 300 page contract means nothing if one side of the deal only intends on honoring the contract as long as it favors them."
The law firm of Covington and Burling’s website lists Credit Suisse as a client. U.S. Attorney General Eric Holder was formerly associated with Covington and Burling. Let’s hope that the judicial process continues unimpeded in a normal fashion.
3 replies
  1. Cin An
    Cin An says:

    This is tres bizzare

    How is it that Tim Blixseth (or his son Beau) are able to sue anybody, let alone Credit Suisse? Didn’t Blixseth benefit with a huge tax-free loan from Credit Suisse? A loan only made possible by Cushman & Wakefield’s evaluation of Tim Blixseth’s assets – which he inflated and helped build up for the purposes of getting investors? It seems he was both a partner and a beneficiary – while investors, creditors and others all suffered, Blixseth walked away with a huge pile of cash. How can he possibly have any standing to sue when a previous judge claimed the via fraud and deceptions he was responsible with Credit Suisse for the bankruptcy? This guys appears to sue everybody and anything that gets in his way – Toby watch out.

  2. Concerned West End Resident
    Concerned West End Resident says:

    Time will tell the story!

    Toby, once again I’d like to applaud your impeccable reporting of the CS,GSM and YC lawsuit.

    I can only add that there must be a few defendants who are wondering how this is all going to play out.

    The legal system works when all of the facts are presented accurately and a final order clarifies who harmed whom.

    This is going to be interesting to watch as the final outcome develops.

  3. Toby
    Toby says:

    Reply to Cin An

    Your comments indicate more than a hint of wealth envy. Neither are they based on fact.

    I’ve been following this story for three years. I’ve read the complaints and many other documents. I’ve also been contacted by hundreds of buyers who were left holding the bag, in part because of Credit Suisse’s loan program.

    To set the record straight, Cushman & Wakefield was not hired by Tim Blixseth. They were contracted by Credit Suisse.

    It was C&W that ”inflated” the assets, not Blixseth.

    The rulings of the previous judge were reversed. I have pages of testimony as to why he should have been removed from the bankruptcy case.

    The loan was syndicated to ”investors” by Credit Suisse, not T. Blixseth.

    Blixseth was once on the Forbes 400 list. He’s not there anymore. Besides his losses resulting from the bursting real estate bubble, he went through a messy divorce. Edra, his ex, is alleged to have been complicit with Credit Suisse and Samuel Byrne (CrossHarbor Capital Partners) and to have filed a bad faith bankruptcy, committed a $50 million bank fraud, forged ”target letters” with Dept. of Justice signatures, etc. in the furtherance of a Yellowstone Club takeover.

    The judicial system does favor those with deep pockets. Smaller property owners individually do not have the resources to fight the CSs and C&Ws of the world. I know scores of them. They are on the sideline cheering Blixseth’s effort. To suggest that the wealthy have no right to sue is simply preposterous.

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