Hedge fund giant Highland Capital claims to have some incriminating emails which could influence the outcome of a lawsuit it filed against Credit Suisse in Dallas.
Highland alleges that Credit Suisse Group AG (ADR) (NYSE:CS) was fully aware that it had over-inflated appraisals of a luxury Las Vegas development, which led to the fund losing $250 million as a result. Now it has unearthed emails which could land the bank in hot water.
The owners of Lake Las Vegas defaulted in 2008, but they had already refinanced with Credit Suisse. Highland chief James Dondero now claims that the bank was fully aware that the loan was “crap”, with one Credit Suisse banker even saying so in an email to a colleague.
“Where are you guys finding all this crap?” Grant Pothast asked. “You must have the deepest dredge known to mankind.”
“I will go anywhere I can find a fee,” said fellow banker David Miller, in a reference to the fact that Credit Suisse Group AG (ADR) (NYSE:CS) would receive a fee if any refinancing took place.
Miller was responsible for valuing the property, using a method of his own design which Highland claims is fraudulent. The hedge fund says that Miller used inflated appraisals to earn more money from these fees. In this particular case the value of Lake Las Vegas jumped from $450 million to $1.1 billion with a few months of Miller’s appraisal.
A rash of new products
According to Highland, in 2004 Credit Suisse Group AG (ADR) (NYSE:CS) introduced a number of new loan products which allowed developers to refinance and immediately pay themselves a big dividend from the proceeds. The e-mails are being examined as part of a federal trial which began on Tuesday.
Each of these products resulted in “bankruptcy or restructuring” and further emails from 2007 appear to show bank staff discussing how they could go about “getting out” without incurring losses, according to court papers filed by the hedge fund.
However their chances of winning the day could be damaged by a similar case brought against the bank in Manhattan. Judge Charles Ramos rejected the case.
For its part the bank claims that Highland is looking for a scapegoat, and denies any wrongdoing. It has since claimed that the refinancing allowed other Highland funds to earn money, meaning that overall losses are limited to $82 million.