Jury Awards Highland Capital $40 Million in Suit Against Credit Suisse -- Update

By Patrick Fitzgerald 

A Texas jury on Friday awarded hedge-fund firm Highland Capital Management $40 million in its lawsuit against Credit Suisse over inflated appraisals of a dozen luxury properties such as golf communities and ski resorts during the mid-2000s.

Highland sued Credit Suisse in July 2013 in state district court, alleging the bank improperly inflated the value of the communities to entice investors.

"We're pleased with the jury verdict and $40 million award for the investors who were victimized by Credit Suisse's intentional fraud," said Scott Ellington, Highland's general counsel. "We pursued this litigation only after repeated attempts to reach a settlement and get Credit Suisse to take responsibility for contriving to manipulate the appraisal process."

Friday's verdict notwithstanding, Credit Suisse spokesman Drew Benson said the bank is confident that the award will be offset by other credits and that the bank will ultimately not have to pay any damages to Highland

"We are highly confident that, after applying proportionate responsibility and applicable credits, today's jury verdict will result in Credit Suisse paying no damages in this case," Mr. Benson said.

He added that Credit Suisse will continue to pursue a $77 million judgment it won against Highland in separate case earlier this year. In that case a judge determined Highland failed to close a pair of 2008 trades tied to loans Credit Suisse had arranged for property developers.

Dallas-based Highland sued the bank last year over its use of an uncommon appraisal method known as "total net value" that relied on the projects' future expected revenue, rather than more traditional methods based on how the market values properties.

Highland funds lost millions on their investments in loans arranged by Credit Suisse for communities such as Nevada's Lake Las Vegas and ski communities like Montana's Yellowstone Club, Utah's Promontory Club and Idaho's Tamarack Resort before the real estate bubble exploded.

Credit Suisse marketed the loans to 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 growing market for high-end real estate. The bank served as the middleman, collecting tens of millions in fees from the transactions.

Eventually, each of the 12 properties valued by the new appraisal method 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.

The fallout from the loans still echoes across the West. In Idaho, a group of property owners is pursuing a multibillion-dollar lawsuit against the Swiss investment bank over allegedly inflated appraisals. In Nevada, Lake Las Vegas's former owners recently settled a bankruptcy trustee's $470 million lawsuit for $115 million.

And in Montana Thursday, Yellowstone's ex-owner Tim Blixseth, who earlier this year was hit with a $219 million judgment from a federal judge in California for diverting the bulk of a Credit Suisse loan for his personal use, was jailed for contempt of court for failing to provide an accounting of missing funds. A bankruptcy trustee has been trying to track down Mr. Blixseth's assets for the benefit of Yellowstone's creditors.

Mr. Blixseth's couldn't be reached for comment Friday.

Joseph Checkler contributed to this article.

Write to Patrick Fitzgerald at [e-mail]

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