Highland Capital Management is suing Credit Suisse for more than
$500 million, the hedge fund firm's latest salvo in its efforts to
recoup some of its losses from the Swiss bank's ill-fated loan
program to developers of U.S. luxury properties such as golf
communities and ski resorts during the mid-2000s.
In a lawsuit filed Friday in state court in Dallas, Highland's
lawyers accused Credit Suisse of using their settlement talks,
which took place over a period of years, as "a way to keep a lid on
its bad behavior" while the statute of limitations ran out on other
investors' claims totaling billions of dollars.
A Credit Suisse spokesman declined to immediately comment on
Highland's allegations. However, the bank has always denied
wrongdoing in connection with the loan program. The bank also
maintains that, at the end of the day, any verdict obtained by
Highland will be set aside or offset by other credits and that the
bank will ultimately not have to pay any damages to Highland.
Highland funds lost millions on their investments in loans
arranged by Credit Suisse for large planned communities such as
Nevada's Lake Las Vegas and ski communities like Montana's
Yellowstone Club, and Idaho's Tamarack Resort before the real
estate bubble exploded.
The Dallas-based hedge fund firm and the bank have been sparring
over who's to blame for losses on the syndicated loans ever
since.
At issue in the latest suit is an agreement between Highland and
Credit Suisse to stop the clock on the statute of limitations while
the two were in talks to settle their dueling legal claims. During
those talks, Highland now claims, Credit Suisse's lawyers offered
to settle Highland's legal claim—totaling more than $600
million—against the bank for at least $70 million.
The settlement talks eventually fell apart, and both sides sued
in 2013. Highland said in the lawsuit that Credit Suisse only cut
off settlement talks after the statute of limitations for other
investors to sue the bank had passed.
"In short, during the nearly three years that Credit Suisse held
[Highland's] claims in abeyance, they simultaneously were able to
conceal their potential culpability from other investors until
their claims were time-barred," according to the lawsuit. "Those
potential claims totaled in the billions of dollars."
The dispute between Credit Suisse and Highland, date back to the
early 2000s, when resort communities catering to the wealthy
sprouted across the West. Credit Suisse marketed loans to about a
dozen of 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, all the properties collapsed into bankruptcy or were
forced to restructure, resulting in hundreds of millions of dollars
in losses for investors, including Highland. Credit Suisse ended up
buying many of the properties at discounted rates after they
collapsed.
The hedge fund firm and the bank have been sparring over who's
to blame for losses on the syndicated loans ever since. Highland
last year won a $40 million award against Credit Suisse and
property appraisers over inflated appraisals used for the
development projects.
The hedge fund firm is also seeking another $340 million in
connection with the Texas jury's finding that Credit Suisse
committed fraud in connection with appraisals for loans tied to
Lake Las Vegas. That trial is slated to start Wednesday in
Dallas.
Credit Suisse, meanwhile, won a $77 million judgment against
Highland for failing to close a pair of 2008 trades tied to loans
Credit Suisse had arranged for property developers. Earlier this
year a New York judge tossed most Highland's breach-of-contract
claims against Credit Suisse tied to the syndicated loans.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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