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Bankrupt MT resort founder faces criminal probe

By Matthew Brown
Associated Press Writer / October 10, 2010

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BILLINGS, Mont.—Two years after the bankruptcy of Montana's Yellowstone Club laid bare a massive real estate scheme fueled by greed, fraud and hundreds of millions of dollars in ill-advised loans, criminal investigators are probing the activities of one of the founders of the ultra-exclusive resort.

Authorities would not comment on the case. But sworn depositions and interviews with key parties indicate former club owner Edra Blixseth centers in the federal investigation.

Blixseth's former bookkeeper has been questioned by the FBI, and her former office manager has hired a prominent Montana criminal defense attorney.

Criminal charges in the case would be another stain on the swank Yellowstone Club, a millionaires-only private ski and golf resort near Yellowstone National Park. The club counts Bill Gates and Dan Quayle among its 300 members, yet spiraled into bankruptcy when the collapse of the real estate market exposed its massive debts.

It has since emerged from bankruptcy under new ownership.

Edra Blixseth's ex-husband, Tim, was the first to make public the criminal probe against her.

Edra Blixseth, meanwhile, said that she's been contacted by the FBI several times over the last two-and-a-half years -- although to talk about investigations into her ex-husband, not herself.

Her attorneys have accused Tim Blixseth in court filings of carrying out a "personal vendetta" against Edra Blixseth through surrogates.

Given the extraordinary bitterness surrounding the couple's 2008 divorce, other attorneys involved in the bankruptcy said it was difficult to discern where Tim Blixseth's accusations end and the investigation into his ex-wife begins.

In text messages entered as evidence by the trustee for Edra Blixseth's estate, Tim Blixseth tells her that she is "the center of evil" and declares "you and your gang are going to jail."

The current federal inquiry into Edra Blixseth involves a series of multimillion dollar loans she took out or guaranteed around the time of her divorce, according to an attorney familiar with the matter.

To get at least one loan, for $13 million, Edra Blixseth acknowledges she signed legal documents that included false claims about her assets.

Court records show she claimed to be worth $782 million at the time of another loan, for $950,000. Within months, she filed for personal bankruptcy owing creditors at least $157 million.

She said in an interview that she did nothing wrong, and that the funds she borrowed were meant to serve only as bridge loans. She hoped to use that money, she said, to leverage even larger sums that would help put the club back in the black.

"Have I done things to scramble and survive? Yes. But nothing based on fraudulent information," she said. "I've been accused of not telling people I was in tight cash flow. But as Tim used to say, if you don't know who I am, Google me. Everything is out there."

A federal bankruptcy judge, Ralph Kirscher, has repeatedly rejected claims that Edra Blixseth conspired to drive the club into bankruptcy as part of a plot directed at her husband. Kirscher also has said Edra Blixseth's financial straits were caused largely by fraud and deceit on the part of her ex-husband. The judge has dismissed many of Tim Blixseth's claims against her as "unsubstantiated rhetoric."

Meanwhile, creditors chasing what was left after she sold the club last year have been stripping Edra Blixseth of her jewelry, cars, art and three luxury estates in the United States and overseas.

Edra and Tim Blixseth hit the height of their real estate riches just before the economy and their marriage crashed. In 2007, their fortune was estimated by Forbes magazine at $1.3 billion.

A large portion of their once-shared riches came from a $375 million loan through Credit Suisse -- a firm that, along with Blixseth, has earned Judge Kirscher's ire for the "naked greed" it displayed in arranging a shaky loan just so it could rake in $7.4 million in fees.

The trustee for Edra Blixseth's estate filed a lawsuit against Tim Blixseth early this month, saying essentially that she was swindled during the divorce, with her ex-husband taking the better half of their shared fortune and leaving her the club and its massive debt from the Credit Suisse loan.

The suit seeks to set aside their divorce settlement on grounds of fraud.

Yet Tim Blixseth and his team of attorneys have continued to push their own fraud and conspiracy accusations against Edra Blixseth and the Boston real estate investor who last year paid $115 million for the club, Sam Byrne with CrossHarbor Capital Partners.

There also have been accusations of destruction of evidence stemming from deleted e-mails and a missing laptop that purportedly contained information about Edra Blixseth's financial affairs.

Edra Blixseth's one-time personal bookkeeper, Patricia Yarborough, testified in a deposition that she was contacted by an FBI agent about the case earlier this year. Yarborough's deposition did not reveal any details of what she was asked by the FBI. Her attorney said the FBI agent, Greg Rice, had asked her not to discuss it.

Another Edra Blixseth assistant, former office manager, Jory Russell, has hired a Bozeman criminal defense attorney to represent him. Tim Blixseth's attorneys say Russell has agreed to cooperate with the FBI in exchange for immunity. The FBI would not confirm the assertion.

Russell's attorney, Al Avignone, also declined to comment on the claim but said his client had done nothing wrong. He said Russell worked for the Blixseths from 2006 to 2009, including two years as a top assistant to Edra Blixseth.

"I can state affirmatively that Mr. Russell did not engage in any misconduct during the time he was employed by the Blixseths," Avignone said.

Tim Blixseth was hit recently with a $40 million civil judgment for fraud, stemming from his diversion of most of the Credit Suisse loan to his personal bank accounts and those of Edra Blixseth.

That judgment has been appealed by club creditors who want even more out of Blixseth -- roughly $286 million that they say he illegally pocketed.

Much that money is sunk into assets and accounts that have been largely out of reach of creditors since Tim Blixseth transferred them to a Nevada partnership, according to court documents.

Tim Blixseth contends his ex-wife plotted with Byrne during their divorce proceedings, intending to come after his half of the money after their settlement was finalized.

"If you pick on the street fighter, expect a street fight," he said of the accusations he's made against Edra Blixseth. "They had a clandestine plan to not only get what she had, but get my half, too. While we are being aggressive, we are being aggressive to defend ourselves."

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