Credit Suisse and the real estate firm Cushman & Wakefield are being sued by two resort developers for fraud and RICO conspiracy charges.
The complaint filed in federal court in Idaho by Tim Blixseth, the founder of the Yellowstone Club in Montana, and Alfredo Miguel, a founder of the Tamarack Resort in Idaho, are trying to recoup at least $2.5 billion from the bank and firm. There is also a potential for triple damages that could reach $7.5 billion if the developers win the lawsuit.
The plaintiffs are joining an initial lawsuit filed in January 2010 against the defendants on behalf of homeowners, property owners and other investors who lost billions of dollars at luxury resorts including Tamarack, the Yellowstone Club, the Lake Las Vegas Resort and development in Nevada and the Ginn Sur Mer Resort in the Bahamas.
“Proposed interveners (Blixseth and Miguel) were defrauded by the defendants in much the same way that the existing plaintiffs were defrauded,” the compliant said. “Credit Suisse through its loans to the Yellowstone Club and Tamarack, and Cushman & Wakefield through its inflated appraisals of the resorts, created a parade of horribles for proposed interveners and the existing plaintiffs.”
The plaintiffs are claiming that Credit Suisse is operating a “predatory” loan scheme that artificially inflated the value of resorts to saddle them with enormous and unsustainable debt.
According to U.S. Bankruptcy Judge Ralph Kirscher, Credit Suisse used a Cayman Islands branch to appraise the private resorts at inflated values. He said the bank used a “total net value” appraisal method conducted by the New York-based real estate firm that did not comply with the Financial Institutions Recovery Reform Act.
“The naked greed in this case combined with Credit Suisse's complete disregard for the debtors or any other person…shocks the conscience of this court,” Kirscher said. “While Credit Suisse's new loan product resulted in enormous fees to Credit Suisse in 2005, it resulted in financial ruin for several residential resort communities. Credit Suisse lined its pockets on the backs of the unsecured creditors.”
The bank allegedly earned tens of millions of dollars in fees in the process, “with the expectation that Credit Suisse would foreclose on, or use the nonperforming loan to obtain ownership of the resort at a cost significantly below market value,” the original suit states. All four resorts defaulted on their loans, and Credit Suisse tried to buy the properties at massive discounts.
In the complaint filed by the resort developers, the plaintiffs said they would not have engaged in the transaction if they knew the loans were inflated and unlawful.
“Credit Suisse perpetrated a fraud on Blixseth and the club and then compounded its fraud by using the bankruptcy proceedings for its own profit and to breach its obligations to not seek repayment of the loan from Blixseth personally,” the complaint states. “Credit Suisse breached its duty of good faith and fair dealing when it demanded to meet with Miguel privately and then extorted him with threats of criminal prosecution and unorthodox collection practices unless he acceded to Credit Suisse's settlement demands.”
The lawsuit proposes the creation of a $600 million fund to help creditors, laborers and small businesses harmed by the Credit Suisse loan or $150 million for each of the four affected communities where the resorts are located.
This is not the first fraudulent case that the Swiss bank has been involved in. Last year, the bank admitted to the U.S. Justice Department that it had illegally helped Iran, Sudan, Libya and other sanctioned nations move hundreds of millions of dollars, for more than a decade, in violation of federal and state banking laws. Credit Suisse forfeited a record $536 million as part of deferred prosecution agreements.
“The criminal misconduct perpetrated by Credit Suisse in this case is simply astounding,” said attorney general Eric Holder. “This case offers a stark and disturbing example of the lengths to which some corporate wrongdoers are willing to go in seeking ill-gotten financial gains.”
