BUTTE – A federal bankruptcy judge on Tuesday called for an outside examiner to investigate the proposed sale of the Yellowstone Club, following accusations of collusion between the club’s owner and its would-be buyer.
The millionaires-only club, now under Chapter 11 bankruptcy protection, fell almost $400 million into debt last year after its former owner diverted hundreds of millions of dollars from the enterprise.
Current owner Edra Blixseth wants to sell the 13,600-acre club for $100 million to the Boston investment firm CrossHarbor Capital, barring any higher offers.
U.S. Bankruptcy Judge Ralph Kirscher on Tuesday called for the appointment of an examiner to look into charges of insider transactions between Blixseth and CrossHarbor. The Boston firm last year offered $470 million for the club but later retracted the proposal.
Under its latest purchase offer, almost a quarter of the $100 million sale price would go to repay CrossHarbor’s prior loans to the club. That would leave other creditors scrambling for a slice of the remaining proceeds.
The entities with the most to lose are lenders owed $307 million under a loan managed by the financial firm Credit Suisse.
Appearing before Judge Kirscher on Tuesday, Credit Suisse attorneys pointed to long-standing ties between CrossHarbor and Blixseth. The attorneys said those were evident of a “spider web of insider relationships, agreements, financings, conflicts of interest and self-dealing insider actions.”
CrossHarbor principal Sam Byrne — also a club member — invested $55 million in 31 lots of club real estate in 2007. He bought other club property and development interests for undisclosed sums in 2005 and 2006, and last year lent Edra Blixseth $35 million.
Byrne said Tuesday he welcomed the appointment of an examiner because he had nothing to hide. He said Credit Suisse had long been aware of his prior dealings with the club.
Meanwhile, Credit Suisse is facing a potential problem of its own — a lawsuit against the firm being prepared by attorneys representing other creditors.
At the time of the 2005 loan, Credit Suisse representatives knew that much of the money would be diverted outside of the club by former owner Tim Blixseth, Edra’s ex-husband. Knowingly allowing that diversion leaves the firm open to charges that the loan was fraudulent, which could threaten its current position at the front of the Yellowstone Club’s long line of creditors.