December 19, 2014 / 8:35 PM / 4 years ago

Jury faults Credit Suisse in Lake Las Vegas refinancing

Dec 19 (Reuters) - A Texas jury has found Credit Suisse fraudulently enticed investors to back a $540 million loan for the Lake Las Vegas resort, only to have the borrower quickly default.

The jury set damages at $40 million, according to court documents filed on Friday in state court in Dallas.

Zurich-based Credit Suisse was found to have used inflated appraisals to convince an affiliate of Highland Capital Management in 2007 to refinance the Nevada resort community, which sought Chapter 11 bankruptcy a year later.

“We’re pleased with the jury verdict and $40 million award,” said a statement from Highland’s general counsel, Scott Ellington.

William Reid, Highland’s outside counsel with Reid Collins & Tsai law firm, said the fund would seek $300 million in damages against the bank next year, when breach of contract claims go to trial.

Highland had sought more than $200 million. The jury found Credit Suisse was 65 percent at fault for the damages and attributed 35 percent to others not named as defendants in the lawsuit.

Credit Suisse spokesman Drew Benson said the bank won a $77 million judgment against Highland earlier this year for the investment fund’s failure to close trades stemming from 2008.

“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,” Benson said.

Highland’s lawsuit stemmed from a dividend recapitalization loan, which Credit Suisse began pitching to resort developers in 2004, according to court papers.

The loans allowed developers to pay themselves a dividend and allowed Credit Suisse to pull in millions of dollars in fees, the complaint said.

In 2007, Credit Suisse tried to refinance Lake Las Vegas’ $560 million dividend recapitalization loan, which ran into trouble as the development failed to meet projections.

To win investor support for the refinancing, the lawsuit said, Credit Suisse dominated the appraisal process to drive up the value of the real estate to as much as $896 million.

After Lake Las Vegas filed for bankruptcy in 2008, the liquidation value of the same property was determined to be $23 million, according to court documents.

Credit Suisse arranged a similar dividend recapitalization loan with the Yellowstone Club in Montana, which also filed for bankruptcy. In October, a New York judge dismissed a lawsuit by Highland against Credit Suisse that claimed hundreds of millions in damages from the resort loans. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Von Ahn)

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