By Patrick Fitzgerald
A Texas jury on Friday awarded hedge-fund firm Highland Capital
Management $40 million in its lawsuit against Credit Suisse over
inflated appraisals of a dozen luxury properties such as golf
communities and ski resorts during the mid-2000s.
Highland sued Credit Suisse in July 2013 in state district
court, alleging the bank improperly inflated the value of the
communities to entice investors.
"We're pleased with the jury verdict and $40 million award for
the investors who were victimized by Credit Suisse's intentional
fraud," said Scott Ellington, Highland's general counsel. "We
pursued this litigation only after repeated attempts to reach a
settlement and get Credit Suisse to take responsibility for
contriving to manipulate the appraisal process."
Friday's verdict notwithstanding, Credit Suisse spokesman Drew
Benson said the bank is confident that the award will be offset by
other credits and that the bank will ultimately not have to pay any
damages to Highland
"We are highly confident that, after applying proportionate
responsibility and applicable credits, today's jury verdict will
result in Credit Suisse paying no damages in this case," Mr. Benson
said.
He added that Credit Suisse will continue to pursue a $77
million judgment it won against Highland in separate case earlier
this year. In that case a judge determined Highland failed to close
a pair of 2008 trades tied to loans Credit Suisse had arranged for
property developers.
Dallas-based Highland sued the bank last year over its use of an
uncommon appraisal method known as "total net value" that relied on
the projects' future expected revenue, rather than more traditional
methods based on how the market values properties.
Highland funds lost millions on their investments in loans
arranged by Credit Suisse for communities such as Nevada's Lake Las
Vegas and ski communities like Montana's Yellowstone Club, Utah's
Promontory Club and Idaho's Tamarack Resort before the real estate
bubble exploded.
Credit Suisse marketed the loans to the projects' owners, who
could pocket a chunk of the proceeds as a dividend or a loan.
The bank would then arrange financing for the loans from nonbank
sources like private-equity firms, hedge funds like Highland and
debt-fund managers. In return, the lenders would get exposure to a
growing market for high-end real estate. The bank served as the
middleman, collecting tens of millions in fees from the
transactions.
Eventually, each of the 12 properties valued by the new
appraisal method collapsed into bankruptcy or were forced to
restructure, resulting in hundreds of millions of dollars in losses
for investors. Credit Suisse ended up buying many of the properties
at discounted rates after they collapsed.
The fallout from the loans still echoes across the West. In
Idaho, a group of property owners is pursuing a multibillion-dollar
lawsuit against the Swiss investment bank over allegedly inflated
appraisals. In Nevada, Lake Las Vegas's former owners recently
settled a bankruptcy trustee's $470 million lawsuit for $115
million.
And in Montana Thursday, Yellowstone's ex-owner Tim Blixseth,
who earlier this year was hit with a $219 million judgment from a
federal judge in California for diverting the bulk of a Credit
Suisse loan for his personal use, was jailed for contempt of court
for failing to provide an accounting of missing funds. A bankruptcy
trustee has been trying to track down Mr. Blixseth's assets for the
benefit of Yellowstone's creditors.
Mr. Blixseth's couldn't be reached for comment Friday.
Joseph Checkler contributed to this article.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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