Yellowstone Club collapse pinned on founder, judge says Blixseth must repay most creditors

By Matthew Brown, AP
Tuesday, August 17, 2010

Yellowstone Club collapse pinned on founder

BILLINGS, Mont. — A federal judge has pinned the financial collapse of Montana’s ultra-exclusive Yellowstone Club on a series of fraudulent deals by founder Tim Blixseth, but says he doesn’t have to repay all the resort’s debts.

Attorneys in the case said Tuesday that Blixseth could end up on the hook for only $20 million to $65 million. That’s versus more than $200 million in claims against the club that are still outstanding — money that for now will remain in Blixseth’s pocket.

In a 135-page ruling, U.S. Bankruptcy Judge Ralph Kirscher slammed Blixseth for patterns of “self-dealing” and “deception” that allowed the real estate mogul to siphon hundreds of millions of dollars from the private ski club.

Yet Kirscher said some blame for the bankruptcy was shared by the financial giant Credit Suisse.

The firm arranged a 2005 loan to the club knowing Blixseth intended to take most of it — money he later used to buy multiple high-end estates and luxury planes and to pad his personal bank accounts.

“Blixseth and Credit Suisse have done a lot of finger pointing in this case, but in the end their conduct prompted (the club’s) bankruptcies,” Kirscher wrote.

Neither Blixseth nor his attorneys immediately returned telephone calls and an e-mail from The Associated Press seeking comment.

Built by Blixseth and his former wife, Edra, in southwest Montana’s Madison mountains, the Yellowstone Club demands a multimillion dollar investment from would-be members.

Though it has since emerged from bankruptcy, in 2008 the club’s reputation as a haven for the megarich disintegrated as the Blixseths went through a bitter and highly publicized divorce.

Within months of Tim Blixseth passing the keys for the club to Edra, the resort fell into massive debt. Unable to repay the $375 million loan Tim had taken out under the club’s name, it declared bankruptcy in November 2008.

Kirscher’s ruling detailed several fraudulent transfers by Blixseth leading up to the bankruptcy and as part of his divorce. The judge rejected Blixseth’s repeated claims that the club was in good shape when he left and that he was the victim of a conspiracy hatched by Edra and the club’s new owner, Boston-based CrossHarbor Capital Partners.

“Blixseth testified at trial that he wanted to see the creditors of the Yellowstone Club paid and that the buck stops with him. The Court agrees,” Kirscher wrote.

Yet in a major break for Blixseth, the judge denied repayment of the outstanding amount on the 2005 loan.

Thomas Beckett, a Utah attorney formerly involved in the case, said the decision could have been much worse for the embattled Blixseth.

“If the party who is suing you for $225 million is suddenly told they can’t, on some level it’s a good day,” Beckett said.

The legal options remaining for Credit Suisse and its investors appear limited because the loan was issued on a nonrecourse basis. That means Blixseth can not be held individually liable.

But Credit Suisse would stand to benefit if the trustee for the creditors, Marc Kirschner, appealed the bankruptcy court ruling and were successful.

The trustee had been seeking a judgment of $286 million against Blixseth — money he has allegedly stashed in a Nevada holding company to shield from potential creditors.

The trustee’s attorney, Charles Hingle, said Tuesday he was reviewing the order.

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