Tim Blixseth fights civil fraud charges

By Mike Coil

In the ongoing saga of the Yellowstone Club bankruptcy case former club owner Tim Blixseth was in federal court last week answering to charges that he fraudulently diverted funds from the club to his own assets and then hid the same from creditors. Marc Kirschner, the Trustee of the Yellowstone Club Liquidating Trust, sued Tim Blixseth and his son Beau Blixseth in federal court alleging that Tim Blixseth diverted $286.4 million from the Yellowstone Club to buy expensive properties around the world and then transferred those properties to a company controlled mostly by Blixseth known as Desert Ranch, LLLP of Carson City, Nevada. The properties include timber holdings, a resort in Mexico, a private island in the Turks & Caicos and the Buffalo Bill Ranch in Cody, Wyoming, among others.

The Trustee is also seeking the return of $207,597 from the Boise law firm of Thornton Byron who allegedly performed work for Tim Blixseth during his recent divorce. The Trustee alleges that the law firm was paid by Tim Blixseth’s companies to the detriment of other creditors. The Trustee maintains that the legal work benefited Tim Blixseth personally but not the debtors in the bankruptcy, even though they paid the bills for Blixseth. The billing records of the law firm have made it into the court documents and show that Blixseth had concerns about the financial stability of the Yellowstone Club months before it filed for bankruptcy.

The Trustee has alleged that in August of 2008, about 3 months before the Yellowstone Club filed for bankruptcy, “Blixseth personally transferred . . . virtually all of his assets to Desert Ranch for less than reasonably equivalent value. At the time he made these transfers, Blixseth knew that the Debtors (the Yellowstone Club) had substantial claims against him relating to the Credit Suisse loan and he knew that the Debtors were in serious financial trouble. At the time of the Desert Ranch Transfers, Blixseth was insolvent or became insolvent as a result of the transfers. Blixseth was either insolvent or rendered insolvent by the transfers.”

The Trustee is also seeking an injunction against Blixseth to prevent him from further transferring or dissipating the assets.

Presumably if the Trustee prevails Blixseth would be required to return many of the assets to the Trustee for use in paying creditors of the Yellowstone Club.

In court papers filed by one of the many lawyers in the case it was alleged that Blixseth had looted the assets of the Yellowstone Club and he should be held accountable for his conduct.

Blixseth maintains that Credit Suisse made a “predatory loan” that they did not expect the Club to repay, which in turn led to the Club’s financial difficulties. Last year Credit Suisse had been admonished by the bankruptcy court for “overreaching and predatory lending practices” with respect to the loan it made to the Club.

Blixseth and his experts also testified that the Club was solvent in 2008 when it went to his ex-wife as part of their divorce proceeding and that it was partly the collapse of the real estate market that led to the Club’s demise. Blixseth stated that in hind sight the loan from Credit Suisse was too large for the Club but at the time the loan was made he believed the same could be repaid.

Blixseth also maintains as a defense that there is a conspiracy afoot between Credit Suisse, Edra Blixseth, Cross Harbor and Sam Byrne to “destroy the value of the Debtors and engaged in a scheme to destroy evidence of this conspiracy.” Prior rulings by the Judge Kirscher leave this defense in doubt.

As part of the proceedings a full list of Blixseth’s assets was submitted to the Court but was quickly placed under seal to prevent public disclosure.

If the Court awards the entire $286 million being sought by the Trustee it is possible that a significant portion of Blixseth’s fortune will be reclaimed and used to pay the creditors of the Club.

All of the related cases including the current contest about Blixseth’s conduct, have been good for the legal profession. More than two dozen lawyers have been employed by the various parties from locations as wide spread as Seattle, New York, Washington D.C., and Boston.

A final decision from Judge Kirscher is expected within the next few months.