By Patrick Fitzgerald
Highland Capital Management is suing Credit Suisse Group AG for
more than $500 million, the hedge fund firm's latest salvo in
efforts to recoup some losses from the Swiss bank's ill-fated loan
program to developers of luxury properties in the U.S.
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.
Credit Suisse spokesman Drew Benson dismissed the lawsuit as an
attempt by Highland to revive its legal claims in Texas after a
judge in New York rejected them.
"This is a frivolous attempt to revive failed arguments that
were already rejected by a New York court," said Mr. Benson.
Credit Suisse previously has denied wrongdoing in connection
with the loan program. The bank also maintains that any verdict in
favor of 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 of dollars on 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 burst.
The Dallas-based firm and the bank have been sparring over who
is to blame for losses on the loans.
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, dates back to
the early part of the last decade, 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
market for high-end real estate. The bank served as the middleman,
collecting tens of millions of dollars 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. Credit Suisse ended up buying many of the
properties at discounted rates after they collapsed.
Highland last year won a $40 million award against Credit Suisse
and property appraisers over inflated appraisals used for the
development projects. The 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 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. This year, a New York judge
tossed most of Highland's breach-of-contract claims against Credit
Suisse tied to the loans. The hedge fund's suit against the bank
for claims occurring after July 25, 2006, is pending.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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