Lawsuit filed against bank over lending practices

By Steve Green

Monday, Jan. 4, 2010 | 2:55 p.m.

A lawsuit seeking class-action status was filed Sunday in behalf of homeowners, property owners and investors against Credit Suisse AG, claiming the bank engaged in predatory lending practices at Lake Las Vegas and other resort developments during the boom years of the 2000s.

The suit, filed in U.S. District Court in Idaho by a team of seven attorneys from four states, seeks damages of $24 billion and asserts claims including racketeering, fraud, negligent misrepresentation, breach of fiduciary duty, conspiracy and unjust enrichment.

This is at least the third court where predatory lending claims are pending involving Credit Suisse and Lake Las Vegas.

The others are in U.S. District Court in Las Vegas and in U.S. Bankruptcy Court for Nevada, where Lake Las Vegas filed for bankruptcy in 2008.

In Sunday's case and in the earlier cases involving Lake Las Vegas, Zurich-based Credit Suisse has denied the allegations of predatory lending.

The plaintiffs, if Sunday’s suit is approved as a class action, would be more than 3,000 people and entities who purchased real estate and homes in Lake Las Vegas, Tamarack in Idaho, Yellowstone Club in Montana and Ginn Sur Mer in the Grand Bahamas.

The suit says that beginning in about 2004, Credit Suisse developed a "loan scheme" that depended on artificially inflating the value of resort projects with an appraisal methodology called "total net value."

"Defendants intended to violate U.S. law with this appraisal scheme, and intended to burden the resorts and the purchasers of property in these resorts with enormous debt; and thereby earn for defendants enormous fees based directly on the amount of debt that Credit Suisse and its agents could impose on a resort project," charged the lawsuit, which also names as a defendant Credit Suisse’s real estate advisory company Cushman & Wakefield Inc.

The suit claims Credit Suisse, in making the loans, expected to later foreclose on or use the non-performing loans to obtain ownership of the resorts at costs significantly below market value.

Noting Credit Suisse syndicated the loans at issue to investors, the lawsuit called the loan program an "own to loan" scheme and a win-win product for Credit Suisse.

"Either the borrower repaid the loan in full and Credit Suisse pocketed not only the enormous up-front fees but interest on the loan, or the risk of loss would originally fall upon U.S. syndicated `note-holders,’ or as actually resulted from the scheme, the amount of debt could crush the resorts and their homeowners and Credit Suisse could then take the valuable property and either develop it and keep the profits, or 'flip' the project to a buyer," the suit charges.

The suit claims Lake Las Vegas was the first of the four developments to be targeted for the new loan product and was used as a "testing ground to refine its loan to own scheme."

The 3,600-acre Lake Las Vegas, a development 20 miles southeast of the Las Vegas Strip, includes more than 1,600 residential units, luxury hotels and a casino.

Sunday’s suit says that since 1987, the initial developers of Lake Las Vegas had invested nearly $600 million in the project. The developers included Ronald Boeddeker’s Transcontinental Corp. entities as well as Texas billionaires Lee Bass and Sid Bass.

The suit says that by 2004, the resort was burdened by just $50 million in operating debt.

Credit Suisse eventually loaned the resort development $560 million in 2004, with much of the money going to the developers so they could recover some of the money invested.

Lake Las Vegas is now in bankruptcy, burdened with $728 million in liabilities amid the worst real estate downturn in memory.

The lawsuit says that after receiving the Credit Suisse loan, the Lake Las Vegas developers were later unable or unwilling to continue paying down the loan to Credit Suisse, causing the failure of the resort development.

"Defendants and their sham agents and representatives now control the lands known as Lake Las Vegas and have caused both golf courses to be shut down (and) have caused the termination of the rights, privileges and amenities running with the land to be terminated," the suit complains.

L.J. Gibson, one of two plaintiffs in Sunday’s lawsuit, has seen her Lake Las Vegas residence lose 80 percent of its value "due to the scheme as virtually nobody wants to purchase property in Lake Las Vegas," the suit says.

It says Gibson has multiple properties and has seen declines in the value of those properties at Lake Las Vegas "that sit next to dead golf courses."

While Lake Las Vegas itself is not a party to Sunday’s lawsuit, Lake Las Vegas and certain creditors have said it was the former owners Transcontinental and the Bass brothers who drained the project of equity after receiving the Credit Suisse loan.

Credit Suisse says it's now owed $675 million in the bankruptcy case. That compares to the development companies' assets, mostly undeveloped land, being valued recently at just $191 million.

Under Lake Las Vegas reorganization plans, Credit Suisse would see much of its debt converted into equity – though critics say Credit Suisse is already in control of the development.