Judge considers charges of fraud against ‘billionaire’ whose fortune may have dwindled

By Matt Gouras, AP
Friday, February 26, 2010

Judge considers fraud charges against Blixseth

MISSOULA, Mont. — The actual size of Yellowstone Club founder Tim Blixseth’s fortune could soon come to light as a a judge considers whether the high-flying real estate developer took hundreds of millions of dollars in a fraud scheme that left the exclusive resort broke.

Such a decision would be a turning point in one of the biggest bankruptcy cases to come through Montana and one that continues to air the dirty laundry of the uber-exclusive resort for the rich and famous. A trial looking at potential fraud ended Friday, leaving the issue up to a judge after he gets final written briefs.

Once proclaimed a billionaire in Forbes magazine’s list of the 400 richest Americans, Blixseth doesn’t appear to have those kinds of assets anymore — and maybe never did.

Blixseth has testified that near the peak of the real estate market in 2006 and 2007, his assets were about half a billion dollars. But he never did a full accounting and could only estimate.

Creditors trying to recoup $286 million from Blixseth are already putting together their own list of Blixseth’s assets: estates, land, companies and toys they say were all funded by fraudulent transfers out of the Yellowstone Club.

A full list of those assets was given to the court Friday, and U.S. Bankruptcy Judge Ralph Kirscher quickly sealed it from public view.

The judge, who has already scolded Credit Suisse for “predatory lending practices” in granting a $375 million loan that buried the club in debt, is now focused on Blixseth. He could force Blixseth to pay back a lot of the money, and creditors are busy identifying Blixseth assets that include:

— A $100 million holding company called Desert Ranch with about 3,000 acres in its portfolio.

— A private island called Emerald Cay, adjacent to a ritzy Turks and Caicos location, currently listed for sale online at $48.5 million but valued by creditors at $35 million.

— One-third ownership of the $40 million Western Pacific Timber LLC, which claims 150,000 acres of timberland in Idaho and Washington. Blixseth has testified this is now his primary occupation.

— Tamarindo, a Mexican resort worth perhaps $40 million, along with an unnamed Mexican company that owns perhaps $2 million in private properties there.

— Half ownership in 640 acres in Bozeman of unknown value.

— The $3.5 million Buffalo Bill Ranch in Cody, Wyo.

— A $25 million stake in a company called Western Air & Water, an aviation and marine company.

The total of maybe a quarter billion dollars is far less than once estimated — and a full judgment against Blixseth by the court could wipe it out.

Attorneys and experts for creditors said the Yellowstone Club’s balance sheets were wildly optimistic even in the best of times. Blixseth knew this, they argued, and sucked it dry before giving his wife full ownership in their divorce. The club filed for bankruptcy protection shortly thereafter.

Blixseth, on the stand Friday, testified adamantly for what remains of his luxury real estate empire.

He argued, in more detail, that CrossHarbor Capital Partners backed out of a deal two years ago to buy the club for more than $400 million — but only after essentially freezing the club’s operations.

Blixseth said he since recovered the hard drives of his ex-wife and found evidence of a conspiracy by CrossHarbor to buy the club cheap after it was forced into bankruptcy by the failed sale and the marital fight. CrossHarbor indeed bought the club for $115 million last year.

“I believe — my opinion — is that the Yellowstone bankruptcy was preplanned by CrossHarbor, implemented by CrossHarbor to get the price at a 72 percent discount of what they were willing to pay for it,” Blixseth told the judge. “There is not conspiracy theory here. It was real.”

Judge Kirscher has several times rejected the notion of a CrossHarbor-Edra Blixseth conspiracy, but he’s also raised concerns about the closeness of their financial relationship. 

Blixseth continued to beat back the assertion that he fraudulently took the Credit Suisse loan and transferred a big portion to his own use.

“When we took out the loan for $375 million from Credit Suisse, the intent was to pay every penny back with every last drop of blood in my body,” Blixseth testified. “Where I come from, a deal is a deal.”

A former shareholder in Yellowstone Club, left in the lurch with millions on the line, was not impressed.

Michael Snow, who has a separate court case demanding his share, testified that Blixseth hid the Credit Suisse loans and the transfers to personal accounts — all while breaking promises to shareholders and leaving club members with an incomplete club.

As Snow left the courtroom, he walked by Blixseth and said something that prompted the fallen founder to follow him out the door. The two entered a conference room where raised voices were heard, but both left laughing 15 minutes later.

Blixseth — who is fighting creditors, an ex-wife, former friends and some of the best bankruptcy lawyers in the business — remained upbeat, believing a positive outcome is in reach. What were he and Snow talking about?

“Settlement talks. I think they are confidential,” said Blixseth, confidently walking back into the courtroom.

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