Whistleblower Featured in Amended Complaint against Credit Suisse, Cushman & Wakefield

It appears that the Defendants have been caught with their pants down in a major league cover-up related to the $24 billion ”Loan To Own” lawsuit.

Palm Coast, FL – April 28, 2011 – A third amended complaint has been filed in the $24 billion lawsuit against Credit Suisse and Cushman & Wakefield. A March 31 ruling in Gibson v. Credit Suisse had dismissed RICO claims against both Credit Suisse and Cushman & Wakefield but ordered Credit Suisse to stand trial on allegations of conspiracy, breach of fiduciary duty and tortuous interference. The April 21st amended complaint is fortified by information recently provided by whistleblower Michael Miller. It brings Cushman & Wakefield back in and adds state consumer protection to the list of allegations.
It appears that the Defendants have been caught with their pants down in a major league cover-up. Miller’s revelations bring to mind the tobacco class action lawsuit and the Enron case. Both broke wide open once an insider came forward.
Michael Miller was a Senior Director in C&W’s appraisal division at the time the "Loan to Own" scheme was hatched. Miller was intimately familiar with internal debates within C&W over the appropriateness of the Total Net Value appraisals. Miller had previously performed an "as is" appraisal for Lake Las Vegas. The amended complaint charges Credit Suisse and Cushman & Wakefield with:
1. Fraud
2. Negligent Misrepresentation
3. Breach of Fiduciary Duty
4. Tortious Interference with Contractual Relations
5. Unjust Enrichment
6. Negligence
7. Consumer Protection Act
The complaint alleges that Credit Suisse contrived a "Loan to Own" scheme whereby Cushman & Wakefield would perform knowingly non-compliant appraisals at targeted Master Planned Communities; Yellowstone Club, Lake Las Vegas, Tamarack, Ginn sur Mer, and others. Ginn sur Mer is the $4.9 billion Grand Bahama Island resort begun by Palm Coast, FL developer Bobby Ginn and his financial partner Lubert-Adler.
According to a draft Declaration, Miller is prepared to testify to facts showing that C&W senior management was well aware of the implications of the Total Net Value or Total Net Proceeds method C&W employed to appraise the Credit Suisse-backed communities. Neither was compliant with the Financial Institutions Reform, Recovery, and Enforcement Act [FIRREA] or Uniform Standards of Professional Practice [USPAP] as required by law.
Credit Suisse, fortified with Cushman & Wakefield’s alleged fraudulent appraisals, turned master-planned communities’ debt into bond-type instruments. The cyclical nature of real estate does not lend itself to such a structured repayment plan. The communities were doomed to fail. They all faced bankruptcy soon after the loans were originated. The developers were unable to complete amenities promised to plaintiffs.
Further, the complaint states:
Indeed, Plaintiffs are informed and believe, that at the same time it was originating the offensive loans to the MPCs [Master Planned Communities], Credit Suisse was turning around and betting that these loans would ultimately fail through its purchase and sale of credit default swaps, which were essentially insurance policies on the loans that would payout to third party investors and to Credit Suisse when the loans ultimately failed. Plaintiffs are informed and believe that Credit Suisse failed to disclose the material fact to the MPCs and the homeowners, that Credit Suisse was selling these credit default swaps to third party investors who were betting for the failure of the loans, and that Credit Suisse was also buying credit default swaps so that it would profit when the loans ultimately failed. Had Credit Suisse disclosed to the public in its press releases and marketing campaigns described herein, that it was betting for the failure of the loans, and selling investment derivatives to third parties who were betting on the failure of the loans, Plaintiffs would not have purchased their properties.
You see, the money behind the extravagant loans was not Credit Suisse money. The loans were syndicated to private investors, primarily hedge funds. Credit Suisse received enormous fees for syndicating and placing the loans, then more fees as lender/manager. They appear to have also profited through credit default swaps when the loans went into default, then again when, through sham debtors in possession, they gained control over the properties for pennies on the dollar. The developments’ bankruptcies severed many of the contractual obligations to those who purchased the lots from the developers. Hence the allegation of Tortious Interference with Contractual Obligations.
Miller was excluded from participating in the Total Net Value appraisals. And those who did work on the appraisals were excluded from using any material developed by Miller for his "as is" appraisals which were much lower, but legally compliant. Still, Miller and others on the appraisal team discussed and debated the appropriateness of the TNV appraisals and the potential exposure to liability.
The internal debate reportedly resulted in a treasure trove of emails and meeting notes which would support Miller’s allegations. Miller is prepared to testify to the existence of significant electric evidence documenting C&W’s activities. One email to Miller from a colleague says, “…not in jail yet and still continuing to write these appraisals….”
In a related case, the Yellowstone Club bankruptcy, Cushman & Wakefield and Credit Suisse were ordered to produce all documents related to the Credit Suisse loan, which would clearly have included any of the Miller-referenced emails and notes. Yet, no such documents were produced.
It seems Miller’s revelations may well open the eyes of the affected developers to potential lawsuits by them against Credit Suisse and Cushman & Wakefield. It might also cause them to wonder about the competence of their legal representation at the time of the loans. Credit Suisse’s hedge fund investors will probably watch unfolding events as well with an eye toward possible retribution.

6 replies
  1. Alex
    Alex says:

    Try me.

    Let see if I can find a customer.

    Lend me $5 million. I have no intention to pay the $5 mil back so you buy insurance on me not being able to pay it back. You collect a large fee and I keep the $5 mil.

  2. Ken
    Ken says:

    Pennies on the Dollar?

    I still don’t understand this comment. If you lend $675 million and don’t get anything repaid, and you end up owning the property, have you not effectively paid $675 million for the property? It isn’t Credit Suisse, the syndicator, that ends up with fee title, but rather the consortium of hedge funds that bought the bonds (i.e lent the money to all of the developers).

    That is a separate issue from the other legal mumbo jumbo, but it is hardly pennies on the dollar. It would seem that the assetion of pennies on the dollar flies in the face of the appraisal argument.

  3. bb
    bb says:

    Sounds like Vegas to me…

    It’s probably oversimplifying it, but it sounds like CS was playing role of the "house" in Vegas casinos. They take a large bet for one team to win and "lay off" the large bet by finding an equally large bet on same team to lose – all along the way collecting a cut from the suckers-I mean gamblers.

  4. Ken
    Ken says:

    Credit Suisse

    Toby –

    Only Tesor and Quail West filed bankruptcies. The CS lending group received about $27 million from the sale of those properties from the Trustee and another 15 million from the Laurelmor sale to Reynolds. The lending group is foreclosing in the Bahamas (Ginn didn’t file a bankruptcy there). So, if the lending group, which includes the hedge fund investors, ends up owning the former Ginn Sur Mer property, their basis in the lots and condominium pads – excluding costs of carry – should be 675 – 27 -15 or $633 million. Credit Suisse does not get the property for its own benefit (and the detriment of the hedge funds), but rather the pro-rata share of the credit it still owns.

  5. Stop Swap
    Stop Swap says:

    This has been updated

    You might want to check out the latest here Case 1:10-cv-00001-EJL-REB Document 240 Filed 05/29/12 which shows Mr. Blixseth’s attorney’s filed an unsigned affidavit from this whistle blower while hiding his signed and substantially different affidavit from the court. His actual affidavit doesn’t appear to support the claims.

  6. Toby
    Toby says:

    Reply to Ken

    It is not the consortium of hedge funds that ends up with the property. The bankruptcy erases the loan to the hedge funds and the contractual obligations to the lot purchasers. Credit Suisse or a proxy of Credit Suisse end up with the property. Contact me if you want a copy of the 3rd amended complaint.

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