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The Highland Income Fund (NYSE:HFRO) (“HFRO”), a closed-end investment company managed by Highland Capital Management Fund Advisors, L.P. (the “Adviser”), announced an update in the case against Credit Suisse, AG, Cayman Islands Branch, and Credit Suisse Securities (USA), LLC (“Credit Suisse”).

On June 28, 2021, the 134th Judicial District Court (the “Court”) issued a judgment against Credit Suisse, awarding $121 million to Claymore Holdings LLC (“Claymore”), the entity formed to pursue the collective claims on behalf of HFRO and the NexPoint Strategic Opportunities Fund (NYSE:NHF)(“NHF”) (together the “Funds”).

The Court entered the judgment on remand—a result of the Texas Supreme Court’s April 2020 ruling, which upheld the prior findings that Credit Suisse committed fraud but remanded the case to the trial court to enter a new damages award.

On July 23, 2021, Credit Suisse filed a notice of appeal of the June 28 judgment. The matter now will be reviewed by the Dallas Court of Appeals, which ruled unanimously in favor of Claymore in the last round of appeals.

The total aggregate award, which, as of June 28, stood at $121 million, consists of damages and prejudgment interest. The award will continue to accrue interest until the appeals process is exhausted. Any final judgment amount would be reduced by attorney fees and other litigation-related expenses. The net proceeds would then be allocated to the Funds based on respective damages (approximately 82% to HFRO and 18% to NHF). As legal proceedings are ongoing and all recoveries remain contingent, no award amount has been recorded in the Funds’ net asset values at this time.

Background on the Case

The case was originally filed in 2013. Following a bench trial and jury trial, the Court issued its original judgment in favor of Claymore in 2015, which was confirmed by an appellate court in 2018. An appeal of that ruling sent the case to the Texas Supreme Court, which heard the case on January 8, 2020.

On April 24, 2020, the Texas Supreme Court issued an order that affirmed in part and reversed in part the 2018 ruling from the court of appeals. In the April 2020 order, the court upheld the $40 million fraud verdict that resulted from the jury trial; however, it did not uphold the contract damages and equitable relief awarded to Claymore by the trial court following the bench trial.

In its opinion, the Texas Supreme Court noted procedural issues related to the calculation of damages among the reasons for reversing part of the appellate court ruling. It remanded the case to the trial court to determine the appropriate damages calculations and enter a new damages award, resulting in the June 28 judgment.

The case is Claymore Holdings LLC v. Credit Suisse AG, Cayman Islands Branch et al., case number DC-13-07858, in the 134th District Court in Dallas County, Texas.