A jury in Texas awarded Highland Capital Management $40 million related to its case against Credit Suisse for deceiving the alternative credit manager to refinance a risky real-estate development.
Highland accused Credit Suisse of intentional fraud
Highland Capital Management filed a lawsuit against Credit Suisse in July last year. The Dallas-based alternative credit manager alleged that the bank deceitfully inflated the value of Lake Las Vegas, a 3,592-acre residential and resort community to attract investors. The alternative credit manager lost massive losses from deal.
On April 9th 2021, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. Q1 2021 hedge fund letters, conferences and more Read More
Credit Suisse used an uncommon appraisal method called “total net value” and relied on the projected future revenue of the project instead of using the more traditional methods used by the market in determining the value of properties
William Reid, an attorney for Highland Capital emphasized that Credit Suisse was motivated to deceive the alternative credit manager because of the profit it would generate from the fees to underwrite the deal.
“They had $7 million reasons [referring to the fees] to do this deal. They were not doing it to help Highland Capital. We were tricked. We were duped. We were misled,” said Reid during his closing arguments last Wednesday.
The bank argued that it did not deceive Highland Capital citing the reason that the investment failed because of the recession.
Scott Ellington, the general counsel of Highland Capital said, “We’re pleased with the jury verdict and $40 million award for the investors who were victimized by Credit Suisse’s intentional fraud. We pursued this litigation only after repeated attempts to reach a settlement and get Credit Suisse to take responsibility for contriving to manipulate the appraisal process.”
A take-nothing judgment
On the other hand, Drew Benson, spokesman for Credit Suisse expressed confidence that the bank will eventually pay no damages to Highland Capital because the award would be offset by other credits.
Benson said, “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.”
Credi Suisse’s lawyer, Jeffrey Tillotson commented, “The court has not yet applied other settlement credits to this and when those amounts are applied, this is a take-nothing judgment.”