MISSOULA – The founders of the Yellowstone Club are trading blame over the posh resort’s financial collapse in a federal trial that will decide if the club must repay $400 million in debts.
Members of the private ski resort — including Dan Quayle, Bill Gates and former U.S. Senate Majority Leader Bill Frist — saw $88 million in deposits disappear when the club declared bankruptcy last November.
Its recently divorced founders, Tim and Edra Blixseth, blame one another for the problems.
Edra Blixseth has owned the club outright since last August. But Tim was in control in 2005 when the Yellowstone Club took a $375 million loan through the firm Credit Suisse.
Most of that money went to the Blixseths’ private accounts, to be spent on luxury jets and estates in California, France, the Caribbean, Mexico and Scotland.
The club’s creditors and members accuse Tim Blixseth of “looting” the resort. They say the loan was fraudulent because Credit Suisse knew it would not benefit the club.
Edra Blixseth’s attorney latched onto that claim during opening statements in Wednesday’s bankruptcy trial.
“The corporate greed of Credit Suisse coupled with Mr. Blixseth’s sense of entitlement is a very, very bad situation,” said attorney Troy Greenfield.
Tim Blixseth’s attorney, Mike Flynn, said the fact that some of the money went to his client was a red herring. “If anyone in America builds a business and wants to take money out of the business … they’re absolutely entitled to do so,” Flynn said.
Blixseth and Credit Suisse are united in their defense, but could end up pitted against one another if the creditors’ prevail and the 2005 loan is wiped off the club’s debts.
Edra Blixseth last month declared personal bankruptcy. Her former husband says the club was making money when she took it over, and that she drove it into the ground.
But attorneys for the creditors have cast Tim as the engineer of the 2005 loan that makes up most of the club’s debts. And despite the millions she made off the loan, Edra says she objected to the deal at the time.
Wednesday’s trial had been delayed for a week after U.S. Bankruptcy Court Judge Ralph Kirscher ruled that Tim Blixseth’s lawyers had not been given enough time to prepare their case.
A Boston real estate investor, Sam Byrne with Crossharbor Capital Partners, has offered to buy the resort for $100 million. The price could be driven higher during an auction scheduled for May 13.
Before the real estate market’s collapse, Byrne last year sought to buy the club for $470 million. He later withdrew the proposal.
Tim Blixseth accuses his former wife of colluding with Byrne to “prepackage” the resort’s bankruptcy so Byrne could later pick up the club at a bargain price.
Credit Suisse has made similar allegations, but so far they’ve been rejected by Judge Kirscher as unfounded.
Tim Blixseth has said he will bid to regain control of the club during the upcoming auction. He developed the 13,600-acre resort with his former wife in the late 1990s, after making his riches in the timber industry.
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