MIAMI BEACH, Fla. – There is mounting evidence Zurich-based Credit Suisse Group AG has committed criminal violations in the trading of U.S. mortgage-backed securities.
WND has reported that “equity recapitalization” loans originated by Credit Suisse allegedly were a major factor in the bankruptcy of the high net-worth Yellowstone Club.
Now, WND research indicates that the Credit Suisse lending scheme possibly bankrupted a dozen additional high net-worth resort developments.
In February, federal criminal charges were brought against Kareem Serageldin, 38, Credit Suisse’s former global head of structured credit trading, and two associates. The three were accused of falsifying prices of mortgage-backed securities to meet bank-established profit targets, enhance their performance ratings at the bank and boost their year-end bonuses.
As Bloomberg reported, charges were brought against Serageldin after two of his former associates, David Higgs, 42, and Salmaan Siddiqui, 36, claimed when pleading guilty that Serageldin told them to overstate the value of mortgage-backed assets in a Credit Suisse trading book known as ABN1 after the collapse of the U.S. housing market.
According to Bloomberg, Serageldin, who lives in the U.K., earned $7.27 million in salary and other compensation in 2007.
Credit Suisse, the second largest bank in Switzerland, took a $2 billion loss when the mortgage-backed securities pricing fraud was discovered.
Credit Suisse told Reuters the three employees involved in the scheme were fired in 2008.
The question now is why the Justice Department has not begun a criminal investigation of Credit Suisse’s lending activities regarding a dozen or more high-profile, high net-worth luxury resorts located throughout the United States and in the Bahamas.
‘Equity recapitalization’ – a criminal fraud?
As WND has reported, several hundred pages of legal documentation provided by Tim Blixseth, the founder of the Yellowstone Club, and his attorney, Michael Flynn, indicate Credit Suisse utilized inflated appraisals conducted by Cushman & Wakefield in making the equity recapitalization loan that led to the Yellowstone Club’s bankruptcy.
The inflated Cushman & Wakefield appraisals arguably were not compliant with the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 – the FIRREA. The valuations were based on a non-FIRREA-compliant standard of “total net value” that established a value for the Yellowstone Club at $1.165 billion when it was only worth approximately $455 million.
Yet, to date, the Department of Justice, headed by Attorney General Eric Holder – a former partner in the Washington-based law firm Covington & Burling – has not undertaken any civil or criminal investigations against Credit Suisse.
WND has documented that Credit Suisse is a Covington & Burling client.
Bankrupt luxury resorts
Now, WND research shows that the Credit Suisse lending scheme bankrupted possibly a dozen additional high net-worth resort developments in addition to the Yellowstone Club in Montana.
They include the following three examples:
- Lake Las Vegas, a 3,600-acre, 1,600-home resort development in Henderson, Nev. A Lake Las Vegas bankruptcy creditor trust sued the billionaire Bass brothers in Texas, the Transcontinental Corp. of Santa Barbara, Calif., and several other Las Vegas investors to recover some $470 in profits and/or capital that the creditor trust alleges the investors took out of a $670 million Credit Suisse equity recapitalization loan made to the resort, as reported by VegasInc.com in October 2011.
- Tamarack Resort, a mountain ski-and-golf resort in west-central Idaho. On Jan. 30, 2010, a class action suit with RICO charges was filed against Credit Suisse and Cushman & Wakefield charging that an equity recapitalization loan arranged with a fraudulent appraisal was responsible for the bankruptcy of Tamarack Resort. The class action suit alleges the Credit Suisse equity recapitalization program was a deliberate scheme designed to burden property holders in the resort with debts they could not repay, so that the bank could gain through foreclosure or bankruptcy a property interest in the resort at a fraction of its true value.
- Ginn Sur Mer, a resort development at West End, Grand Bahamas. The luxury resort was initially envisioned with 1,400 single home sites and more than 4,000 condo hotel units, complete with an Arnold Palmer-designed golf course, a Jack Nicholas-designed golf course, a 55,000 square foot casino, an equestrian facility, a championship tennis facility and a central grand canal equipped with water taxis and gondolas. The resort’s financial problems began when developer Bobby Gin and his financial partner, Lubert Adler, defaulted on a $675 million loan arranged from a syndicate of lenders brokered by Credit Suisse.
The scheme was simple: Credit Suisse made untold millions in fees through inflated loans on high visibility luxury real estate based on inflated Cushman & Wakefield appraisals that neglected standards set in FIRREA.
Credit Suisse had virtually no risk of loan loss because the loans were sold to a “syndicate” of investors, including hedge funds and foreign investors.
In an attempt to bypass various federal lending laws, Credit Suisse allegedly originated loans through a Cayman Island branch that consisted only of a post office box, while loan documents linked back to Credit Suisse First Boston, thereby assuring legal standing under federal laws, should the lenders default on the loans.
By encouraging developers to recapture their capital immediately simply by taking the vast majority of the loan proceeds for themselves, Credit Suisse virtually guaranteed the developments would be insolvent and the loans would default.
Once the resorts were in bankruptcy, Credit Suisse exerted its rights under the loan agreements to take over the role of developer and assume a property-ownership interest in the resorts, all at a fraction of fair market value.
WND research could not find any of the dozen or so resort properties that enrolled in Credit Suisse’s equity recapitalization program that had not defaulted on the loans, throwing the properties into bankruptcy proceedings.
Loan documents fraudulent?
WND previously reported that Credit Suisse made a $375 million syndicated equity recapitalization loan to the Yellowstone Club through a Credit Suisse branch in the Cayman Islands – a loan that ultimately led to the bankruptcy of the Yellowstone Club.
WND has determined that evidence in the credit agreement Credit Suisse prepared and signed for the loan Sept. 30, 2005, indicates the bank possibly committed fraud by violating the terms of its own loan agreement.
On page 7 of the credit agreement, “eligible assignee” is defined as a lender, an approved fund, or a commercial or savings bank organized under the laws of the United States, with the clear implication that any organization functioning under the agreement would have to comply with FIRREA requirements to be an eligible assignee.
This implication is reinforced by Section 9B of the credit agreement, “Assignment by Lenders,” which further specifies that eligible assignees function as lenders under the agreement. As such, the assignees have the same rights and obligations as the lenders, including complying with all FIRREA requirements.
Yet, WND is in possession of the appraisal Cushman & Wakefield of Colorado prepared for Credit Suisse First Boston, LLC, dated July 1, 2005, which on page 2 specifically states that the appraisal Credit Suisse used in making the $375 equity recapitalization loan was not FIRREA compliant.
Attorney Flynn, representing Blixseth in the Yellowstone Club bankruptcy proceedings, told WND that Credit Suisse’s attempt to circumvent the requirements of the credit agreement by utilizing a Cayman Island branch to make and syndicate the loan to participating financial entities and qualified investors indicates criminal intent.
“This is what our pleadings allege,” Flynn explained to WND. “Credit Suisse engaged in a patently criminal fraud. Credit Suisse used the Cayman Islands as an attempted circumvention but in using the Cushman & Wakefield appraisal, the bank contradicted the assignment language making all loans subject to FIRREA.”
The case for criminal fraud was clear, according to Flynn.
“Credit Suisse says in the assignment language that all assignments in making the loan must comply with all relevant laws, but yet the appraisal provided Credit Suisse by Cushman & Wakefield says in black and white that the appraisal is not in compliance with FIRREA requirements.”