Credit Suisse's secondaries business has claimed Netherlands-based family office Plaza Group, its partner in a joint venture, defrauded the bank of more than $300 million and ran a “brazen conspiracy to cheat and deceive on an unmatched scale”.
The bank filed a lawsuit in New York State Supreme Court this week in which it claims Plaza illegally transfered $340 million of limited partnership interests to an entity called Blackthorne to pay off an outstanding $750 million debt that it never reported to the bank. Credit Suisse said Blackthorne is controlled by Plaza head, Louis Reijtenbagh.
“Under the cover of negotiating a 'settlement' of [Plaza's] supposed obligations to Blackthorne, the [defendants] have perpetuated an at least $340 million fraud,” Credit Suisse said in the lawsuit.
The joint venture between Plaza and Credit Suisse was set up in 2006. Credit Suisse Strategic Partners – the bank's private equity secondaries group – agreed to provide financing to Plaza to grow the firm's portfolio of investments in private equity limited partnerships to about $1 billion. Over time, the bank extended more than $751 million to the family office.
Credit Suisse said when the joint venture was created, Plaza and its affiliates reported no outstanding liabilities or significant debts.Meanwhile, Plaza filed for bankruptcy earlier this month, claiming that Credit Suisse compelled the firm to make “poor investment choices”, leaving it “in severe financial trouble”.
Plaza claims that fair value write-downs have caused the value of its private equity holdings to drop, putting it in violation of loan covenants governing the joint venture. The covenant violation allows Credit Suisse to cut off further funding to the joint venture, and in that situation, Plaza said it would not be able to fulfill any more capital calls and would have to forfeit LP interests.
Plaza has about $364 million of unfunded capital calls. It maintains it has no choice but to declare bankruptcy to prevent its various partnership interests from being subject to default clauses.
Reijtenbagh has sought bankruptcy protection from numerous Credit Suisse funds, DLJ Merchant Banking Partners, Colony Capital, Morgan Stanley, The Blackstone Group, Avista Capital, The Carlyle Group, Clayton Dubilier & Rice, Court Square Capital Partners, Diamond Castle Partners, Hellman & Friedman and JC Flowers.The legal and bankruptcy filings do not make clear the exact economic relationships between Plaza, Credit Suisse, and these numerous counterparties.
Plaza blames Credit Suisse Strategic Partners for causing the firm to “invest in poorly performing funds and forgo transactions that would have been profitable. Such poor investment decisions, compelled by [Credit Suisse], have severely impaired [Plaza's] financial standing.”