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
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| Tim Blixseth leaving federal court in Missoula last spring. NewWest photo by Daniel Doherty. | |
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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.
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Comments
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.
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.
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.
Of the amount owed, $33,000,000 was transferred from the family compound in MT. Where does the $100,000,000 figure come from?
To Mocs: blah blah blah. Bleeding heart, you actually voted for the Tarp and Bail Out didnt you!
Your anonymity allows assertions in safety, BH, who ever you are.
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.
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.
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.
My what a poor little victim Timmy really is!
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?
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
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?
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.
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...
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.