Investors in broke resorts sue Credit Suisse, say bank giant schemed to take over properties

$24 billion lawsuit filed against Credit Suisse

BOISE, Idaho — Property owners at four struggling and bankrupt resorts in Idaho, Montana, Nevada and the Bahamas have filed a $24 billion federal lawsuit against Credit Suisse Group, saying the banking giant gave predatory loans to the resorts’ investors as part of a scheme to take over the properties.

Property owners at Idaho’s Tamarack Resort, the Yellowstone Club in Montana, Nevada’s Lake Las Vegas resort and the Ginn Sur Mer Resort in the Bahamas contend that Credit Suisse set up a branch in the Cayman Islands to skirt U.S. federal bank regulations and appraised the resorts at artificially inflated values as part of a plan to foreclose.

A spokesman for the Switzerland-based bank, Duncan King, said the lawsuit is without merit and the company will fight the claims.

The lawsuit, filed in Boise’s U.S. District Court on Sunday, seeks class-action status. The property owners, L.J. Gibson and Beau Blixseth, say they are filing the lawsuit on behalf of the thousands of people who bought property and homes at the resorts.

Gibson lives at Lake Las Vegas home and owns property at Tamarack Resort and Ginn sur Mer. Blixseth, the son of Yellowstone Club creator Tim Blixseth, owns property at the Yellowstone Club.

In the lawsuit, Gibson and Blixseth described a complex conspiracy dubbed “Loan to Own” that reads like a plot outline for a John Grisham novel.

First, they said, the money for the resort loans came from a separate fraudulent scheme to help Iranian banks dodge U.S. economic sanctions. That practice ended last month with Credit Suisse agreeing last month to pay $536 million to settle a U.S. Justice Department probe and admit to violating U.S. economic sanctions by hiding the booming Iranian business.

In 2005, the owners argue, the bank used profits from the scheme to finance a predatory lending plot, opening a branch in the Cayman Islands and marketing loans to high-end developers.

They say opening the Cayman Islands branch allowed the bank to skirt U.S. real estate appraisal laws. Instead of using appraisal methods accepted in the U.S., the property owners contend, the bank worked with huge real estate brokerage Cushman & Wakefield to develop a type of appraisal that would grossly inflate the values of the resorts.

Cushman & Wakefield is also a defendant in the lawsuit. “The allegations are completely without merit and we will defend ourselves vigorously,” spokesman Dwayne Doherty said.

The bank then used the artificially inflated appraisals to give the resort developers oversized loans that the bank knew they would never be able to pay back, saddling major investors and property buyers with enormous debt, Gibson and Blixseth said.

Then, the property owners say, the bank syndicated the loans, selling the loans to hedge funds as an investment opportunity — allowing Credit Suisse to become the “administrative manager” of the loans and to make money off each transaction, while transferring all the risk to the hedge funds.

After the resorts defaulted on the huge loans, Credit Suisse moved to foreclose. The bank foreclosed on Tamarack in 2008; that case is still moving through bankruptcy court.

The property owners contend that Credit Suisse planned to make money on both ends of the deal — first by collecting millions of dollars in loan fees, then later by “flipping” the resorts, foreclosing on the properties and buying the land at fire sale prices. Some parcels at some of the resorts have been sold at foreclosure proceedings, but most are in the midst of bankruptcy.

To back up its claim, the lawsuit cited a statement made last May by U.S. Bankruptcy Judge Ralph Kirscher. Handling the Yellowstone Club bankruptcy, Kirscher said, Credit Suisse, driven by “naked greed” and the desire to get more loan fees, used overreaching and predatory lending practices with complete disregard for the developer and others invested in the resort.

“Credit Suisse lined its pockets on the backs of the unsecured creditors,” Kirscher said.

That order was later overturned by the court, however, after the Yellowstone Club reached a settlement with its creditors.

Though there have been other lawsuits against banks alleging predatory lending practices since the economic downturn, the Credit Suisse case stands out for the sheer size of the monetary figure sought, said Ryan Severino, an economist with Reis, Inc.

“Twenty-four billion is not an insignificant amount of money — that’s a pretty substantive amount,” he said.

In most cases, Severino said, real estate lenders don’t want to take control of the property they provide loans for.

“Generally the people who are in the market as lenders prefer to be lenders just because the risk-return profile is different. Certainly there are some entities out there that do both, but for the most part lenders don’t lend with a “loan to own” mentality,” Severino said.