Judge Orders Credit Suisse to Pay Highland $287.5 Million in Suit Over Loan

By Joseph Checkler 

A judge on Friday said Credit Suisse must pay a unit of Highland Capital Management $287.5 million over a soured real-estate loan, a win for James Dondero's hedge-fund firm in its multipronged fight against the Swiss bank over luxury developments.

Judge Dale B. Tillery of U.S. District Court in Dallas County, Texas, said Credit Suisse must pay $211.9 million in damages and restitution and $75.6 million in prejudgment damages and interest for breach of contract on a loan tied to the Lake Las Vegas planned community, which went into bankruptcy in 2008.

A Credit Suisse spokesman didn't immediately have comment.

In an emailed statement, Highland spokesman Tom Becker said, "We are pleased the Texas State Court ruled in our favor on all claims and agreed with us that Credit Suisse not only committed fraud and other torts, but also breached the terms of a contract with certain Highland funds when it committed a massive and systematic fraud, costing investors of the Lake Las Vegas development hundreds of millions of dollars."

The case was tied to a $40 million award against Credit Suisse and property appraisers over inflated appraisals used for the development projects. Highland sought an award from Judge Tillery of another $340 million, in connection with a Texas jury's finding that Credit Suisse committed fraud in connection with appraisals for the Lake Las Vegas loans. Highland is now entitled to either the $40 million or the $287.5 million, but not both.

Highland has filed multiple suits against Credit Suisse to try to recoup losses from the bank's ill-fated loan program to developers of luxury properties in the U.S.

The dispute dates back to the early part of the past 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.

Patrick Fitzgerald contributed to this article.

Write to Joseph Checkler at [e-mail]

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September 04, 2015 19:52 ET (23:52 GMT)

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