White Collar: Property Owners Sue Credit Suisse for Fraud

Owners of property at four luxury ski and/or golf resorts have sued Credit Suisse for $24 billion. The class action civil suit alleges that Credit Suisse engaged in conspiracy, wire and mail fraud, racketeering, and money laundering. The complaint alleges that Credit Suisse engaged in a predatory loan scheme designed to load the developments with so much debt that it could foreclose on the assets.

The lawsuit involves property at the following four resorts: Ginn Sur Mer in the Bahamas, Lake Las Vegas in Nevada, Tamarack Resort in Idaho, and Yellowstone Club in Montana. The complaint alleges that Credit Suisse concocted a scheme to artificially inflate the resorts' values to make large loans and charge exorbitant loan fees. Moreover, the plaintiffs allege that the bank knew that the resorts would not be able to perform under the loans. Thus, the complaint alleges that the entire plan amounted to nothing more than an elaborate scheme to bleed money from buyers through loans and then foreclose on those buyers when they became unable to keep up with the loan payments.

The civil case may have developed from the bankruptcy proceeding of the Yellowstone resort. In that case U.S. Bankruptcy Judge Ralph Kirscher said that Credit Suisse had devised a "predatory" loan scheme.

Credit Suisse in the last several years has become very active in financing upscale resorts, which have fallen into bankruptcy. The only property named in the class action suit not in bankruptcy is Ginn Sur Mer.

The plaintiffs filed the action in the United States District Court for the District of Idaho.

For more information about the suit, please see The Wall Street Journal, January 4, 2010, http://online.wsj.com/article/SB10001424052748703580904574638052691063912.html.

White Collar: Credit Suisse Settles with Government

International banking giant, Credit Suisse, has reached an agreement with the Department of Justice and the New York County District Attorney. The government has agreed to defer prosecution of the Swiss bank in return for payment of $536 million. If the company does not commit any further violations, it will not be prosecuted. The monitoring of the bank's behavior will be undertaken by Swiss authorities and the Federal Reserve Bank of New York.

The government said that for a 10 year period Credit Suisse had helped clients in Iran and other foreign countries, against which there were economic sanctions, to secretly conduct financial transactions in US dollars. In addition to clients in Iran, Credit Suisse helped other clients in Libya, Sudan, Burma, and Cuba. Credit Suisse was one of several banks involved in the two year investigation. However, it is the largest of the banks involved. So far, the case has resulted in fines assessed against banks of more than $1 billion.

The investigation revealed that Credit Suisse had moved or processed more than $700 million for clients under sanction between 1995 and 2006. Additionally, the government said that the bank had manipulated and processed $1.1 billion in payments to hide their Iranian origins. Also, using code names to hide the true identities of the banks involved, a division of the bank located in London had illegally invested $150 million for banned banks in Libya and the Sudan.

Credit Suisse accepted responsibility and cooperated in the investigation. These factors were instrumental in the bank obtaining the deferred prosecution agreement. Credit Suisse said that in 2005 it had ended the business giving rise to the illegalities. Moreover, it claimed to have performed its own internal investigation and cooperated with American authorities. Additionally, the bank said that it had closed its Tehran office in 2006 and had ended all business with sanctioned countries in 2007.

It appears that the United States is attempting to exert pressure on Iran to end its nuclear program through aggressive financial sanctions. While direct sanctions on the country may have limited effect, it seems that the goal is to increase the pressure by removing the country's access to international bankers. Moreover, it seems likely that the United States in conjunction with the New York County District Attorney, whose jurisdiction is Manhattan, are using the same aggressive tactics against other rogue states.

For more information, please see The Wall Street Journal, "Credit Suisse's Secret Deals," December 17, 2009, page A3, and The New York Times, http://www.nytimes.com/2009/12/16/business/16bank.html?_r=1&scp=2&sq=credit%20suisse&st=cse.