Bankers on Trial, Again

Lake Las Vegas Creditors Mimic Yellowstone Club Lawsuit

By Jonathan Weber , 7-31-09

	Lake Las Vegas

Like the Yellowstone Club and a number of other major resort projects around the country, Lake Las Vegas in Nevada took a giant loan from a Credit Suisse-led lender group, allowed the owners to pocket the bulk of the proceeds, and then abruptly fell into bankruptcy when the real estate meltdown hit. Now, following in the footsteps of the Yellowstone Club creditors successful lawsuit against Credit Suisse, the creditors committee in the Lake Las Vegas bankruptcy has filed a suit against the banking giant, seeking to have some $545 million in loan proceeds invalidated as a “fraudulent transfer” and returned to the company to satisfy creditors.

The owners of Lake Las Vegas, primarily developer Ron Boeddeker and Texas investors Sid and Lee Bass, took some $685 million in loans from Credit Suisse in 2004 and 2005, according to the complaint, and pocketed $470 million in cash as a return on equity, with Credit Suisse earning about $13 million in fees. The development, a 3,500 acre Mediterranean-themed community with an artificial lake and three golf courses about 20 miles outside of Las Vegas, filed for bankruptcy protection in July of 2008.

The lawsuit includes a section entitled “Yellowstone Comparisons,” and quotes U.S. Bankruptcy Judge Ralph B. Kirscher’s ruling that “naked greed in this case combined with Credit Suisse’s complete disregard for the debtors or any other person or entity who was subordinated to Credit Suisse’s first lien position, shocks the conscience of this court.” Kirscher ordered that the Credit Suisse Yellowstone Club loan be “subordinated” to other claims, and that in turn prompted a settlement in which the bulk of Credit Suisse’s $310 million claim was wiped out. Kirscher’s ruling was “vacated” as part of the settlement, but attorneys say that does not preclude it from being used in other cases.

Among the similarities between the two cases are the use of a so-called “total net value” appraisal from Cushman & Wakefield. That appraisal method does not conform to U.S. financial regulations and had the effect of drastically overstating the value of the property.

Lake Las Vegas is a much larger development than Yellowstone Club, and creditors may be owed as much as $300 million. The property continues to operate with a $128 million debtor in possession loan from Credit Suisse, but two of the three golf courses are closed.

Unlike the Yellowstone Club case, the Lake Las Vegas case will be tried before a jury - and since Las Vegas is the foreclosure capital of the country, that does not bode well for Credit Suisse.

A Credit Suisse spokesman said the bank was reviewing the complaint.

Like this story? Get more! Sign up for our free newsletters.