GLOBAL - Two US developers have joined a lawsuit against Credit Suisse over inflated loans already branded "predatory" by a Montana bankruptcy judge.
The developers, which are claiming $2.5bn (€1.7bn) before damages, join a 2010 class action on behalf of four investors who allege the bank acted fraudulently and in breach of its fiduciary duty by inflating valuations to increase its own fee income.
It then allegedly attempted to acquire the distressed assets at a discount when the resorts inevitably defaulted.
The new plaintiffs claim the bank's actions resulted in foreclosures "caused directly by shoddy, deceitful, misleading and fraudulent appraisals".
They also claim Cushman & Wakefield connived in the fraud by providing grossly inflated valuations using its own total net value (TNV) appraisal system, which does not comply with US regulations.
According to the plaintiffs, TNV aggregates cash flow from real estate lots sales over the life of the resorts without applying an appropriate discount rate or accounting for the other variables involved in a fair-market valuation.
In this week's filing, the plaintiffs accused Credit Suisse of pitching a "new no-risk/huge profit" real estate loan created in 2004 to investors in the same way that "homeowners around the nation were tapping into their ever-increasing home equities like ATM machines".
The submission continued: "Credit Suisse needed the loans to be as large as possible, but it also needed to carry virtually no risk of loss, yet also position Credit Suisse to profit when the loans failed, which Credit Suisse knew or should have known that they would."
In his original finding, bankruptcy judge Ralph Kirscher said the bank's "complete disregard" for its debtors had "shocked the conscience of the court".
One of this week's plaintiffs, Alfredo Miguel, owner of the failed Tamarack resort, alleges the bank threatened him with "unorthodox collection practices".
The other, Tim Blixseth, has a significant litigious history, most recently when he lost a conspiracy lawsuit against his former solicitor over the failure of the Yellowstone Club at issue in the current case.
Neither Credit Suisse nor Cushman & Wakefield responded to requests for comment before deadline today.