Founders of ritzy Montana club trade accusations

By Kahrin Deines and Matthew Brown. Associated Press, April 30, 2009

The founders of the Yellowstone Club are trading blame over who is responsible for the financial collapse of the Montana haven for the rich that has fallen more than $400 million into debt.

Members of the private ski resort — including former Vice President Dan Quayle and Bill Gates — pay substantial sums for the privilege of building expensive homes in the gated resort but they do not own the club itself.

Its founders, recently divorced Tim and Edra Blixseth, blame one another for the problems that led the club to file for federal bankruptcy protection.

Edra Blixseth has owned the club outright since last August. But Tim Blixseth was in control in 2005 when the Yellowstone Club took a $375 million loan through the firm Credit Suisse.

Most of that money went to the Blixseths’ private accounts, to be spent on luxury jets and estates in California, France, the Caribbean, Mexico and Scotland.

“I assumed when no one said to me there’s something wrong with it, there’s nothing wrong with it,” Tim Blixseth said during testimony Wednesday in the club’s bankruptcy trial. He was referring to one of several money transfers — totaling more than $300 million — that the club made to a corporation Blixseth had sole control over.

“I was the manager and I did what I felt was an appropriate decision at the time,” he added.

The club’s creditors and members accuse Tim Blixseth of “looting” the resort. They say the loan was fraudulent and should be voided because Credit Suisse knew it would not benefit the club.

Edra Blixseth’s attorney latched onto that claim during opening statements Wednesday.

“The corporate greed of Credit Suisse coupled with Mr. Blixseth’s sense of entitlement is a very, very bad situation,” said attorney Troy Greenfield.

Tim Blixseth’s attorney, Mike Flynn, said the fact that some of the money went to his client was a red herring. “If anyone in America builds a business and wants to take money out of the business … they’re absolutely entitled to do so,” Flynn said.

Edra Blixseth last month declared personal bankruptcy. Her former husband says the club was making money when she took it over, and that she drove it into the ground.

But attorneys for the creditors have cast Tim Blixseth as the engineer of the 2005 loan that makes up most of the club’s debts. And despite the millions she made off the loan, Edra Blixseth says she objected to the deal at the time.

The loan was one of at least six Credit Suisse arranged for upscale resorts now in financial trouble. The deals were marketed to resort owners who then took massive and early “profit dividends” before the developments were completed.

During his testimony Wednesday, Tim Blixseth said he was told by Credit Suisse that other owners also took “distributions” from the loans made to their resorts.

Credit Suisse brought in third-party investors to fund the loans, and made its money off fees — $7.4 million in the case of the Yellowstone Club.

A Credit Suisse attorney, George Zimmerman, defended the loans and pointed out that the Yellowstone Club kept up with its payments for three years before it fell in bankruptcy.

A club member and Boston real estate investor, Sam Byrne with Crossharbor Capital Partners, has offered to buy the resort for $100 million. The price could be driven higher during an auction scheduled for May 13.

Tim Blixseth accuses his former wife of colluding with Byrne to “prepackage” the resort’s bankruptcy so Byrne could later pick up the club at a bargain price. Credit Suisse has made similar allegations, but so far the judge has rejected them.

Tim Blixseth has said he will bid to regain control of the club during the upcoming auction. He developed the 13,600-acre resort with his former wife in the late 1990s, after making his riches in the timber industry.

###

 

 

StudioPress Premium WordPress Themes