In 2008, Highland Capital and Credit Suisse Group AG (ADR) (NYSE:CS) entered business together over Highland’s investment in Lake Las Vegas, a resort community real estate development. Highland received an appraisal from Credit Suisse in earlier years, which valued the 3,582 acre property at $891 million from $522 million in 2007. With the appraisal, Highland Capital used the property as collateral against a $540 million loan. However, the deal defaulted, the property was sold for pennies on the dollar, for $17 million and Highland saw massive losses. All the while, Credit Suisse collected $20 million in fees and sold dividend recapitalization loans totaling $3 billion in restructured products, which all eventually went under. From 2004 to 2006, Highland increased their investment in the Lake Las Vegas development. Unfortunately, 2008 caused a real estate meltdown and soon after, the property was sold on a fire sale and Highland walked away with massive losses from the deal.
Highland Capital accuses Credit Suisse of using inflated appraisals
Six years later, Highland Capital is officially going after Credit Suisse Group AG (ADR) (NYSE:CS), accusing the bank of using inflated appraisals and tactics for the purpose of fees and allegedly mislead Highland investors. Highland Capital is seeking $250 million in damages from fees and false appraisals in New York lawsuit. However, Credit Suisse lawyers and officials maintain that Highland executives chose to not read the appraisals and rather are trying to get investment losses covered for a deal that “just did not work out”. Additionally, Credit Suisse is fighting the lawsuit damages saying that $168 million of the $250 million was already previously invested in the project, and that only $82 million applied to the circumstances to which Highland is suing. “The appraisal was bad and this case is about Credit Suisse’s involvement,” William Reid, a Highland attorney, told a jury in state court in Dallas today in his opening statement. The ultimate sale price of the property was so low that it couldn’t “be explained by market loss or anything else other than fraud,” says Reid (Dallas News).
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Credit Suisse will be rigorously fighting the lawsuit in court
Nevada courts have already awarded other investors in the development, such as Larry Lattig, who sued developers for $470 million in 2010. Lattig also received financing for the project in 2004 from Credit Suisse Group AG (ADR) (NYSE:CS). This could mean good news for Highland Capital, however, it appears that Credit Suisse is not going down easy and will be rigorously fighting the lawsuit in court. Unfortunately, it is well known the kind of lending practices banks were using in the early 2000s, generally speaking. While this does not make Credit Suisse automatically guilty of Highland’s accusations, it will certainly likely be in the mind of the jury and it will take some convincing from the bank to prove that Highland officials never viewed the appraisal and took risk based on sound documents. All in all, it is too early to say who is right and who is wrong, but it certainly shows that we still see and feel the effects of 2008 even today.