Judge Kirschner continues to set the standard for cases against Credit Suisse and developers who took profit distributions from CS loans, causing their company’s subsequent bankruptcy.
Inflated appraisal values: The value of the target developments was inflated through an appraisal method that did not conform to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). Credit Suisse attempted to circumvent those requirements by issuing the loans through a sham Credit Suisse branch in the Cayman Islands. The loans, however, were marketed by Credit Suisse First Boston. September 21, 2004, Cushman & Wakefield determined that the "as-is-market value" of Yellowstone Club was $420 million. One year later, Cushman & Wakefield used the non-FIRREA-compliant "total net value" method to establish the value of the club at $1,165 million.
Equity distribution directly from loan proceeds: Borrower/owners were encouraged to take equity distributions directly from loan proceeds. Blixseth took $209 million (55.7%) while Ginn-LA distributed nearly half of its $675 million CS loan.
"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 communities. Credit Suisse lined its pockets on the backs of the unsecured creditors. The only equitable remedy to compensate for Credit Suisse’s overreaching an predatory lending practices in this instance is to subordinate Credit Suisse’s first lien position to…..that of the allowed claims of unsecured creditors."
"In this case, Credit Suisse and the Prepetition Lenders are just as culpable as Blixseth." Further, "Blixseth and Credit Suisse have done a lot of finger pointing in this case, but in the end, their conduct prompted Debtors’ bankruptcies. Following Part I of the trial in this matter, the Court was not inclined to enter an order that would benefit the people who took the funds out or the Debtor entities and the Court will not at this time enter an order that would in any way benefit Credit Suisse, the Prepetition Lenders or other parties who have speculated on a monumental award against Blixseth. The parties who suffered compensable damages in this case are the parties who have legitimate claims against the Debtors and who did not participate in the Credit Suisse loan debacle.""…the Court is not apportioning liability between Blixseth and Credit Suisse. Rather, the Court is precluding Credit Suisse and the Prepetition Lenders from benefitting from their participation in the Yellowstone Club loan. More importantly, the Court is prohibiting Credit Suisse and the Prepetition Lenders from converting a monrexourse loan into a recourse loan through crafty legal negotiations…."