Blixseth's Alleged Breaches
Blixseth Fraud Trial: Court Seeks Assets, Answers
Tim Blixseth is facing claims that he looted the Yellowstone Club and hid $280-plus million. How will it end?
By Amy Linn, 2-25-10
Accused of secretly siphoning $286.4 million of his assets to a Nevada company so creditors couldn’t get it--and charged with bankrupting the ski resort he built from scratch--Yellowstone Club founder Tim Blixseth sat in a federal courtroom in Missoula yesterday and watched the latest chapter in his legal saga unfold.
The ending might be riches-to-rags.
The 59-year-old real estate tycoon, who launched a lavish 13,400-acre private enclave above Big Sky a decade ago, is on trial before U.S. District Judge Ralph Kirscher for allegedly committing fraud and breaching his fiduciary duties to the club.
The gated millionaires-only community, home of Bill Gates and former Vice President Dan Quayle, went into bankruptcy in November 2008, chiefly due to a 2005 loan transaction in which Blixseth borrowed $375 from Credit Suisse, ostensibly for the club, and then pocketed $209 million of it. Among other deluxe items, Blixseth used the cash to buy a French chateau, a private island, a Mexican golf resort and other properties around the world for a failed uber-rich resort club business he called Yellowstone Club World.
Today, the Yellowstone Club Liquidating Trust, a group charged with liquidating assets to pay off creditors in the wake of the bankruptcy, alleges that Blixseth’s actions “can only be described as looting.” The loan—and Blixseth’s “pattern of deception and self-dealing”—left the club “doomed to failure,” according to the civil complaint by Trust attorney Charles Hingle.
“The truth of the matter is that Blixseth walked away from the Debtors after receiving the benefit of hundreds of millions of dollars, and the Debtors”—the Yellowstone Club and associated entities--"received nothing in return, except enormous liens against their property and an obligation to repay a loan that was never meant for their benefit in the first place,” Hingle wrote. “Blixseth cannot just walk away this time; rather, he must be held accountable for his actions.”
In court today, Blixseth’s lawyers argued in hair-splitting legalese that Blixseth could not be held responsible for the hundreds of millions of dollars at issue. Blixseth maintains, among other things, that the disputed assets and liabilities were transferred to his ex-wife Edra Blixseth in the August 2008 marital settlement agreement (MSA) in the couple’s divorce. He also claims the MSA “released” him from the claims in general, and from claims for breach of fiduciary duty in specific.
Blixseth attorney Thomas Banducci kicked off day one of the three-day trial by questioning Marc Kirschner, head of the Trust, about another defense argument: that there was conflict-of-interest on the Trust board.
“Four out of seven members of the trustee advisory board are appointed by Credit Suisse,” Banducci said to Kirschner. “Didn’t that cause you to think there was a conflict?”
“They’re independent businessmen or work for hedge funds-- they’re not beholden to Credit Suisse,” Kirschner answered from the stand.
But Judge Kirscher himself ruled that Credit Suisse’s actions in the Yellowstone Club matter “were so far overreaching and self-serving that they shocked the conscience of the Court,” Banducci reminded Kirschner. “Did that not concern you?”
“No, because the matter was resolved,” Kirschner replied.
“But if this lawsuit is successful, the lenders [Credit Suisse] will benefit,” Banducci said.
“If this lawsuit is successful, all the creditors will be successful,” Kirschner answered.
Outside of court, meanwhile, some of the evidence against Blixseth seemed more clear-cut, particularly in terms of a court document filed by the Trust on Feb. 19.
The complaint alleges that shortly before the Yellowstone Club filed for bankruptcy, Blixseth made “numerous transfers of assets” to a Nevada entity, Desert Ranch LLC, that he set up to shield his assets from creditors, rendering himself insolvent, at least on paper.
“Blixseth implemented a scheme to defraud his creditors, including the debtors,” immediately after signing the marital agreement, the complaint asserts. “Specifically, beginning in August 2008, approximately three months prior to the filing of this bankruptcy, Blixseth personally transferred or caused to be transferred virtually all of his assets to Desert Ranch for less than reasonably equivalent value.
At the time of the transfers, Blixseth knew the Yellowstone Club and its associated firms “had substantial claims against him ... and he knew that the Debtors were in serious financial trouble. At the time of the Desert Ranch transfers, Blixseth was insolvent or became insolvent as a result.”
The complaint calls the Desert Ranch set-up “a garden-variety asset protection plan” that shields assets while allowing debtors to continue enjoying their wealth.
Blixseth, a Washington resident, owns 98 percent of Desert Ranch; the other 2 percent is owned by an associated Nevada company, Desert Ranch Management, in which Blixseth owns a 40 percent share. His son Beau Blixseth owns 30 percent of it; the remaining 30 percent is owned by two trusts run by George Mack, “a long time friend and business associate of Blixseth,” the court document claims.
More remarkable, the alleged asset-hiding was laid out in smoking-gun invoices from Thornton Byron, a Boise law firm that allegedly guided Blixseth through the Desert Ranch deal. According to court documents, Thornton Byron advised Blixseth how to “isolate” his assets from “the imminent bankruptcy” after the division of property in his divorce.
Detailed billing statements--more than 30 of which are posted in the complaint--give shorthand descriptions of the divorce battle starting in April 2008; they end in June 2008 with details about how Blixseth protected what he’d won.
On June 17, 2008, according to the invoices, the lawyers discuss concerns “regarding Mr. Blixseth’s possible liability to creditors of Mrs. Blixseth, Blixseth Group Inc. or the Yellowstone Club entities if Mrs. Blixseth were to assume liabilities of business entities.” They also perform “analysis of documentation and transactional steps to limit Mr. Blixseth’s exposure on subsequent collection efforts with respect to liabilities assumed by Mrs. Blixseth.”
On June 10, 2008, the lawyers plan how to “isolate Desert Ranch property” to “limit potential liability.” On June 9, 2008, they “evaluate the cancellation of debt considerations and potential issues with respect to a bankruptcy.” And on June 6, 2008, they “address the issues re the potential exposure vis-à-vis a bankruptcy ... to provide maximum protection for Mr. Blixseth.”
The complaint demands that Blixseth give all the transferred assets to the Trust. According to the court document, the properties protected by Desert Ranch include:
-- One-third ownership interest in Western Pacific Timber, valued at $40 million
-- Three entities that own stock in a Mexican company with residential properties in Tamarindo, Mexico, valued at $2 million
-- Fifty percent ownership in a 640-acre parcel of land in Bozeman, Montana (not valued)
-- The Buffalo Bill Ranch in Cody, Wyoming, valued at $3.5 million
-- Western Air & Water, valued at $25 million
-- Emerald Cay Ltd., with a private island in the Turks & Caicos worth an estimated $35 million
-- Desert Ranch, which owns 3,000 acres of land, valued at $100 million
-- Tamarindo resort in Mexico, valued at $40 million
-- Nineteen businesses in the United States and more than 10 other foreign businesses
Blixseth is not the defrauder, Blixseth’s lawyer Michael Flynn told the court. Among other things, Flynn alleged that Blixseth and the club were misled by Edra, who derailed a more than $400 million bid by Boston-based CrossHarbor Capital Partners to buy the Yellowstone Club in the spring of 2008, he said. (CrossHarbor, led by real estate investor Sam Byrne, succeeded in buying the bankrupt club for $115 million last July.)
Edra Blixseth is now in Chapter 7 bankruptcy, but she’s the one who hid assets, Flynn alleged.
Blixseth, a man whose name in news articles is rarely mentioned without the accompanying words “timber baron,” listened soberly from the defense table in a charcoal-gray zip-necked sweater.
“In fact, Mr. Blixseth was defrauded,” Flynn said.
For more on the Yellowstone Club saga, see our archive of coverage here.
[End of article]I do not understand why Edra would have agreed to what she did. She had been the CFO of the development from the beginning. She knew the debt load.
Someone should interview her to find out Why she accepted the debt load, while he took the cash?
I realize that in the end, she was glad to get the divorce done with and that there is acrimony in both directions. Still, it seems less than an intelligent move.
Outrageous. String that deceitful SOB up and make an example of him. Seize his assets, put his ass in jail where it belongs, and throw away the key. The whole situation is nauseating: the ultra-wealthy getting screwed by the supremely wealthy. It's hard to pick a side to empathize with when everyone involved is equally repulsive...
Comment By Surcouf, 2-25-10Did anyone check the bank accounts in Providenciales Turks and Caicos
Comment By bearbait, 2-25-10When you get in a jam, go with the pitches that got you there. Blixeth was doing business under a corporate name, not paying bills, finally being forced to the financial wall by creditors, and the creditors ended up getting nothing because Timmy had long since taken anything of value out of the corporation being sued, and the money was in another state under another name, in some sort of protected status. That has been his game plan for 30 years. It has worked well enough to make him a billionaire at one time. Hopefully, his actions were egregious enough this time, and the victims tenacious enough, well heeled enough, to take him to the mat. I wish him only the worst. He really, really needs to end up like so many who have done business with him: on his broke ass with a tin cup full of pencils on the street corner starting over.
Comment By BH Returns, 2-25-10I am so amazed by the first comment. Clearly you must understand EDRA was greedy, down-right do anything to show she was the one in charge. There is actually an email between Tim and Edra where Tim offered to take the club ad pay her cash, she SAID no way in hell. In fact she was so convinced she could do a better job she enlisted the help of Sam Byrne. Look where that got her! Let’s see she had to sell everything, she lost the chateau in Bankruptcy, she as thrown out of Porcupine Creek, jets, not one but 2 were seized, left her friends stiffed for the cash they lent her from the puppy dog tears flowing from her drama and in the end did not disclose the amount of loans she took during the 2 year divorce. She really believed it was the only way to pay back everyone. Now, remember when I wrote last year about the 30 day loan? funny how that came to show how CIP / SB controlled her. Fair play by CIP/SB but the lending practice was more than predatory, they knew she could not pay it back and then controlled her. Tim controlled her and was the reason prior to the divorce there was money. Edra was all spend spend spend. Ask yourself this: Where did Edra spend the 100m she borrowed from friends, family and lenders personally against Porcupine Creek? Tim at least managed the money effectively. It’s pretty nasty to see that Credit Suisse cut a deal last April with CIP /SB to only play the card of seizing assets. Cheap trick but if anyone is to blame its Edra Blixseth at this stage. She took the deal, she accepted everything. If she would have let Tim buy her out we would not be here today and Tim would have found a solution, not one everyone would have liked but it surely would not have been to BK the club and see SB steal it on the cheap, steal PC on the cheap and even try to steal the Family compound on the cheap. Hey SB is good at what he does I guess but he and Edra sure made it all happened and Credit Suisse was so eager to learn of their plan. Let’s not forget Credit Suisse changed tactics last minute when it learned SB/CIP would help them go after Tim Blixseth. Needless to say, this trial will say a lot about Montana justice. Will the Judge see through the fact that EDRA, SB/CIP and CS have merely ring-fenced the judge into believing this was all correct? Does the judge not read the emails between SB and EDRA? The loan on PC from SB for 30 days? The Judge must realize Tim Blixseth had no idea about his wife's borrowings against the Estate and not disclosing this in the divorce proceedings. Wake up Montana. It’s easy to fry Tim Blixseth, but that is not justice, that’s just jealousy and lack of education! Study the facts. Tim Blixseth should be found innocent.
In regards to the Turks comments, clearly a family member who is now living the life off the poor. There is no money there my dear friend. It’s not a place one deposits money to shelter from thieves trying to get at it but if you had half a business mind you would not make such a comment. There are no hidden accounts, in fact Tim Blixseth has been very for coming with what he owns, who owns it and the fact Edra agreed to everything with a team of lawyers and accountants. GREED and SB put her there and now they want Tim to pay. Go figure. It’s so Edra Blixseth style, she loses and can’t help but try and take down her Ex Husband because of her own failures. It’s time for Edra Blixseth to come clean with the Judge and tell the truth, it’s the only way she can ever so her face in public as those around know the truth. She cut the deal, she made her bed and it’s time for her to quit being dishonest. I hope this remains posted as its meant as fair comments. I am more than willing to post the email with Edra and Tim, which I believe it part of the evidence in court being submitted. GREED.
BH Returns=nonsense.
Tim cannot divest his history of defrauding the American taxpayer through previous broken contracts and shady deals. Oh, and what about ripping up the Galatin? Typical of HIS style, settling with the EPA for $1.8M without having to admit guilt! BH's line is just more "passing the buck", making a mule look like a donkey, yadayda. In order to lie to someone else, you have to lie to yourself, and he is damn good at it.
To my knowledge, as enumerated in the Bankruptcy court in MT, as of 10/09, there was only $73,500,000 owed against Porcupine Creek. An additional $5,000,000 was being made available to bring the property back to pristine condition.
Of the amount owed, $33,000,000 was transferred from the family compound in MT. Where does the $100,000,000 figure come from?
Sorry but the 100m is the total loans, some of which remain unsecured. Look at her schedules and ask yourself this....from the time she took the money and till BK, where did she spend it? THen you will understand my point.
To Mocs: blah blah blah. Bleeding heart, you actually voted for the Tarp and Bail Out didnt you!
Well, I do not know where you come up with the $100,000,000. I do know where the amount owed against the property comes from.
Your anonymity allows assertions in safety, BH, who ever you are.
Anyone that thinks tb is innocent hasn't known him for very long. He left so many people hanging high and dry over the years it's nice to see it finally catch up to him...hopefully. He never helped anyone unless it helped himself in the process.
The club has more than paid for itself since July and there are some big names on the list. Don't tell tim. We still won't know if the yc employees will benefit any but right now any job is a good job.
From the new ownership standpoint, life is great.
TYC ended up in a pile of shit because everything Blixeth touches will eventually, after he has looted all that he can. That is the history, and it is a history that repeats itself over and over again. If there is justice, he will end up paying his bills. I would not hold my breath.
Comment By Sharkbait, 2-26-10I love it! The sharks are swimming in circles now. I am curious how much money Timmy boy syphoned from property sales prior to the CS loan?! My guess a fat 2 or 3 hundred million on top of loans transfer. Trustee, why are the two houses in Beau's name that Timmy paid for not mentioned; surely those Andesite homes can be traced back to Tim. My understanding is they may be for sale. Wonder if Timmy or family has any of those Swiss bank accounts. Flynn, Edra is or was never smart enough to pull off the asset transfers. Anyone who would represent this slime ball could only be a slime ball himself! Or is it only about the money? It can not be about ethics and morals, that I am damn sure. Maybe just maybe a striped jump suit for Timmy boy or at the very least completely broke! BH returns, hogwash. You know what Daddy has done and your gravy train might be over. I have told you numerous times you should have distanced yourself from this mess! Go get em Trustee and reduce Timmy to popperhood!
Comment By Yes we can't, 3-01-10According to 'puppetboy' Blockhead, because Edra is stupid and greedy it exhonorates Tim from any guilt. Just because Tim was better at keeping the wolves at bay doesn't mean he was a saint like you paint him. His one claim to fame is keeping the ponzi house of cards running a couple of weeks longer than Edra could. They are BOTH peas in a pod - greedy charlatans.
As greedy and stupid as Edra is, she did NOT devalue the club from the half billion offer to bankruptcy in her 2 weeks of control. Tim was trying to offload/dump it himself.
While Tim continues to sit on top of the direct fruits of the loans that crippled, YC he will ALWAYS get attention and deserved blame. Saying 'I divorced that debt' doesn't cut it. If Tim was innocent you wouldn't need to attempt to deflect blame onto Edra...the facts would speak for themselves...but you still try to deflect blame from butter wouldn't melt in his mouth Tim. Nonsense.
Actually YES WE CANT, it does exhonerate him. stupidity is no excuse, especially when you are surrounded by lawyers. Tim does not have to be a Saint. He gave up that title on his first land deal.
In fact, he did, legally divorce his debt. If you want to be mad, go ahead, but the blame for the lack of solvency lies squarely on Edra and Sam Byrne. Had Tim gotten his way, the resort would have been sold to SB in 2008. As a matter of fact, court docs even support the notion that there was a competing bid from another suitor. Sam, having carnal knowledge of the Blixseths finances and their rabid haterd of eachother, used it all to his advantage. Knowing Tim had squirled the money away offshore, his best bet was to befriend Edra, and get the club through a BK. The problem is that Sam finally pissed off the wrong person(s) and "someone" leaked the emails and gamplan to Western, who in turn launched the fraud lawsuit.
Sam Byrne destroyed what little chance the YC members and creditors had of ever getting their money back. With Tims divorce final and the assets in a Nevada LLLC, the ONLY way this is unwound is by SB settling with the Creditors.
The fact that SB has not ansewred the calls for him to respond to the fraud lawsuit, means that he and the lawyers are trying to settle so that he does not find additional lawsuits from his own investors.
I suspect that you will all get paid back in due time, but the checks will be coming from CrossHarbor and not from Blixseth.
kitty, I'm neither mad nor do I have financial attchement scloduing my vision. You are currently spouting the propaganda and smokescreen currently being flooded by Blixseth and his lawyaers and his PR squad. When that is fact you can treat it like a fact. At present it is yet another convenient excuse for Tim to not return money. Don't you see a pattern forming yet...any time mention is made of Tim owing money, excuses and lawsuits suddenly appear. First Tim blamed Edra, then Tim blamed the predatory loans of Credit Suisse, now the SB vulture.
My what a poor little victim Timmy really is!
Did I miss something? Did Sam Byrne make a 450m offer for YC in 2008?
Did Sam Byrne admit in court that he had been working with Edra?
Did Sam Byrne loan Edra 35m againt PC?
Did Sam Byrne get the YC by default when Edra did not pay up?
The only real question is did Sam Byrne know Edra was broke when he loaned her the money. Predatory?
Bottom line is none of whatever Sam Byrne may or may not have done would be even possible without 'cut and run' Tim Blixseth having made a complete mess of it and then abandoning it's corpse. I'm by no means defending Sam, but he would be powerless to do anything if it weren't for Tim's mismanagement, self directed loans and spending on his YCW shrine to himself that failed miserably.
This is all predictable shirking of responsibility by Tim and his PR gang designed to aid his exit. The thought of him being a naive doe eyed businessman being taken advantage of is laughable. He manufactured a divorce to his financial windfall. The guy is a conniving hustler and any shady schiesters would have to form a queue behind Tim.
Where did pinnacle end up? Why was Tim even prepared to sell YC for $450 mill when he publicly valued it much higher...it was a turkey, he knew it and had to flog it. Tim's ponzi scam was collapsing due to low/zero new membership sales.
Where did Tim's bid disappear to?...the money was in the bank according to Mike Flynn.
There are bit player finks all through this melodrama, but the consistent and omnipresent king of finks is Tim Blixseth
All of our homes had inflated prices. The homeowner is not the person who determines the value. CS was in the wrong for making the loan. Tim was in the wrong for blowing it all on WC assets. Edra was wrong for believing that Sam would help her. Sam was wrong for yanking his $450m bid, knowing that he could manipulate Edra and get the club in BK. Had Sam bought the club in '08 for $450m as stated, we would not be having this discussion. So, it seems that the people you all should be concerned with are Edra and Sam, who both admitted in court, had a business relationship. Tim may be an idiot or a bad guy, but it was edra who allowed Sam to put her in BK and take the club for pennies on the dollar.
The PROOF of sam's guilt is his absolute silence. Tim and others have officially called him out. Tim called him a liar in court and in the media. Tim has accused him of fraud. There is no counter by Sam's lawyers. No defamation suit. Nothing. Sam can't sell anything now, because the microscope is on him. He can argue the claims because the judge has the emails thanks to the latest suit.
Can you honestly deny any of this?
Can I deny deny it...I have no intention of even trying. Sam can be as guilty as sin but that does not mean Tim is a saintly victim as you and his PR squad attempt to portray him.
Tim was actively signalling his own intention on buying the club for cents in the dollar himself. Just because Tim fell through doesn't mean he wasn't actively attempting to benefit from Edra's downfall and bankrupting the club. There were 2 vultures, not 1.
As this story states, Tim stands accused of looting and self-dealing. It is lunacy to suggest Tim Blixseth is innocent due to speculation about another's guilt. So far Tim has used Edra, Credit Suisse and now Sam to excuse or mask his own behaviour.
Without question, the biggest beneficiary of this whole sorry melodrama is Tim. When his situation is resolved, then you can focus on the others, otherwise it is merely enabling his cowardly excuse ridden exit.
Blixeth made the list of leading tax non-payers in California, according to my morning paper. He owes California $894,000 in unpaid personal income taxes.
If he owes that on income in California, and he does not work for a salary or a wage, that would indicate earned income from assets in California....a significant income. I am sure he intends to pay them....sure...I can imagine negotiations are under way to find a way for him to not pay that amount, but a lesser amount. Bidness. Blixeth Bidness, as the late Molly Ivins would have described it. No mention of her in the last couple of years, but she was a force in the fall from grace of "Shrub" and the ascent of Barry Obama...
So it looks like Tim can't keep his story straight over whether the Yellowstone Club was viable under his control. As at the divorce, there were significant unpaid taxes...taxes Tim was unable to pay despite saying everything was just peachy under his watch. Mike Flynn and Tim knowingly arranged back tax obligations as part of the divorce right? Just par for the course right? They have a sense of humour...all part of the self dealing and divorce of convenience.
Tim and Mike will play the 'divorced that debt' card yet again but that doesn't change the fact under Tim the house of cards was foundering, hence his cowardly blame-ridden exit.