Financiers Under Fire

Yellowstone Club Creditors Target Credit Suisse, Blixseths

By Jonathan Weber , 2-12-09

The $375 million loan made by Credit Suisse to the Yellowstone Club in 2005 ended up mostly in the pockets of Tim and Edra Blixseth, according to court papers filed late Wednesday, and thus constituted a “fraudulent transfer” that “aided and abetted” the club founders in breaching their fiduciary duties to the club.

The filing in U.S. Bankruptcy Court by the committee representing people owed money by the club sought the court’s permission to file a lawsuit against Credit Suisse. The lawsuit itself, which was included in the filing and is posted here (PDF), details where the funds from the loan allegedly went, and asks not only that the court disallow Credit Suisse’s claims for repayment of the remaining $309 million on the loan, but that the bank be forced to pay back $146.4 million in principal, interest and fees that it has collected to date.

While the lawsuit does not name the Blixseth’s as defendants, it makes clear that the committee believes that they are also culpable in the transaction and leaves open the possibility of future action against them.

The lawsuit states that the original loan was part of a new Credit Suisse product line that was specifically designed to provide “owners of luxury second-home developments the opportunity to take their profits out early by mortgaging their development projects to the hilt.” Credit Suisse would “earn a substantial feel, and sell off most of the credit to loan participants. The development owners would take most of the money out as a profit dividend, leaving their developments saddled with enormous debt.”

Loans of this type were made not only to the Yellowstone Club, but also to Tamarack Resort in Idaho (which is effectively bankrupt and operating under a receivership), Promontory in Utah (also in bankruptcy), and a number of other projects in the U.S. and abroad.

The lawsuit goes on to state: “Enticed by the riches available from Credit Suisse, the Blixseths chose to breach their fidicuiary duties, abandon the Yellowstone Club, and participate in a loan transaction that gave windfalls to them and Credit Suisse, at the expense of the Yellowstone Club.”

The loan agreement explicitly stated that up to $351 million of the $375 million loan was intended “for purposes unrelated to the Yellowstone Club,” according to the lawsuit. Credit Suisse collected $7.4 million in fees, and more than $200 million was allegedly placed directly into the Blixseth’s personal bank accounts. Some of the money did go into club accounts, with $28 million of that later spent to buy the Chateau de Farcheville in France, $40 million spent to buy the Tamarindo resort in Mexico, and $12 million for golf property in St. Andrews, Scotland. Those properties were supposed to be part of the failed Yellowstone Club World vacation timeshare club.

A spokesman for Credit Suisse said the company believed the allegations were “without merit.”

Update: Tim Blixseth has issued a statement in response to the allegations. Click here to read the full statement.

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