Credit Suisse Group AG was sued for more than $350 million by entities of Highland Capital Management LP who claim it marketed loans for high-end residential communities including the Yellowstone Club in Montana based on unreasonable and deceptive appraisals.
The dispute stems from dividend capitalization loans for Yellowstone, the Turtle Bay Resort in Hawaii, the Park Highlands Master Planned Community in North Las Vegas, Ginn Clubs & Resorts and Rhodes Homes, according to a court filing July 16 in New York State Supreme Court in Manhattan.
The plaintiffs, Allenby LLC and Haygood LLC, were assigned the claims by managed investment funds that participated as lenders to the loans, according to the suit. They accused Zurich-based Credit Suisse of using “compliant stooges in two global appraisal firms” to overvalue the communities that secured the loans to persuade the lenders to invest.
“Armed with these bogus appraisals, Credit Suisse duped the lenders into investing hundreds of millions of dollars in under-collateralized loans that eventually imploded,” according to the plaintiffs.
Highland Capital Management, the Dallas-based debt manager, and entities connected to it are behind the lawsuit, Drew Benson, a spokesman for Credit Suisse in New York, said in an e-mail. Benson called the claims an “unfounded attempt by a sophisticated investor to misuse the legal system to recover losses” and said the bank will fight the lawsuit.
Credit Suisse sued entities of Highland Capital in the same court yesterday, accusing them of failing to honor commitments to purchase and pay for interests in commercial loans, which the bank said has cost Credit Suisse Loan Funding LLC and its Cayman Islands branch tens of millions of dollars in damages.
The lawsuits involve different properties but similar types of properties and investments, Benson said.
The suit involves a series of trades made between May and July 2008 whereby Credit Suisse agreed to buy parts of commercial loans with a face value of more than $78 million, and Highland hasn’t paid the amounts owed on the loans or interest, according to the suit.
Highland Capital Management declined to comment on both suits, Stefan Prelog of Walek & Associates, which handles media inquiries for the company, said in an e-mail.
Former timber baron Tim Blixseth and his ex-wife, Edra Blixseth, founded the Yellowstone Club, near Big Sky, Montana, in 2000 as a ski resort for millionaires looking for vacation homes. Members paid a combined total of $205 million for 72 properties in 2005 alone.
The couple took cash for their personal use from a $375 million loan arranged by Credit Suisse that year, according to a court ruling by U.S. Bankruptcy Judge Ralph B. Kirscher in Montana. Finances at the club deteriorated thereafter, and the club eventually went bankrupt, Kirscher found.
Sam Byrne’s buyout firm, Boston-based CrossHarbor Capital Partners LLC, acquired the club out of bankruptcy for $115 million in 2009. Members include Microsoft Corp. Chairman Bill Gates and singer Justin Timberlake, and prices range from more than $2 million for a condominium to $18 million for a 350-acre ranch.
The cases are Allenby LLC v. Credit Suisse AG, 652491/2013; and Credit Suisse Loan Funding LLC v. Highland Crusader Offshore Partners LLP, 652492/2013, New York State Supreme Court, New York County (Manhattan).