Credit Suisse Sued by Highland Over Real Estate Appraisal

Credit Suisse Group AG was sued for more than $350 million by Highland Capital Management LP entities that claim the bank marketed loans for the Yellowstone Club in Montana and other developments based on fraudulent appraisals.

Credit Suisse used “bogus” appraisals that inflated the value of collateral backing the loans, leading to investor losses when the loans went bad, the Highland entities said in a court filing July 16 in New York State Supreme Court in Manhattan.

“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, the Dallas-based debt manager founded by James Dondero and Mark Okada, is suing Credit Suisse over dividend recapitalization loans syndicated by the bank. The loans were borrowed by real estate developers based on the value of projects and used to pay dividends, according to court papers. The Zurich-based lender marketed and sold more than $3 billion of the loans.

Investment Funds

The plaintiffs, Allenby LLC and Haygood LLC, were assigned the claims by investment funds that participated as lenders in the loans. A related case was filed against Credit Suisse by Claymore Holdings LLC on July 16 in state court in Dallas.

Highland Capital and entities connected to it are behind the lawsuits, Drew Benson, a spokesman for Credit Suisse in New York, said.

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 lawsuits.

The New York case stems from 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. The Dallas case involves a $540 million refinancing for Lake Las Vegas, a 3,592-acre master planned community that filed for bankruptcy in 2008.

The New York plaintiffs accused 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.

Same Court

Credit Suisse sued entities of Highland Capital in New York 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 court filings.

Highland Capital Management declined to comment on the lawsuits, 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.

Personal Use

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; Credit Suisse Loan Funding LLC v. Highland Crusader Offshore Partners LLP, 652492/2013, New York State Supreme Court, New York County (Manhattan); and Claymore Holdings LLC v. Credit Suisse AG, 13-07858, Dallas County, Texas.