'Diva of Distressed'
Tilton to face SEC fraud trial
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[October 21, 2016]
By Nate Raymond
NEW
YORK (Reuters) - Financier Lynn Tilton is set to go on trial next week
before an administrative law judge on U.S. Securities and Exchange
Commission charges she defrauded investors by hiding the poor
performance of assets underlying three $2.5 billion debt funds.
Tilton, the founder of New York-based Patriarch Partners who is known as
the "Diva of Distressed" for taking over troubled companies, will face
an SEC administrative proceeding in Manhattan on Monday.
The SEC is seeking to force Tilton and Patriarch to pay the agency at
least $200 million for defrauding investors in three so-called Zohar
collateralized loan obligation funds, which raised $2.5 billion to make
loans to distressed companies.
Tilton, 57, denies wrongdoing. She unsuccessfully sued to block what she
called an unconstitutional proceeding before an SEC in-house judge in a
fast-tracked venue that the agency has increasingly used that critics
call unfair to defendants.
Known for her flashy outfits and colorful language, the former Goldman
Sachs and Merrill Lynch banker has portrayed herself as a hard-charging
female executive in a male-dominated field.
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In 2000, she founded Patriarch Partners, which counts among its
portfolio companies MD Helicopters and Dura Automotive.
But in 2015, the SEC accused Tilton of directing the valuations of the
three debt collateralized loan obligation funds to remain unchanged even
though many of the companies in which they invested had performed poorly
and failed to make interest payments.
Not only were investors misled, but Tilton and Patriarch avoided having
their management fees cut by $200 million, the SEC said.
Tilton and Patriarch counter that they consistently disclosed their
investment strategy from the funds' inception.
They have said the charges stem from a flawed five-year probe pushed by
a unit of bond insurer MBIA Inc, which had $1 billion in exposure to the
three Zohar funds and has been engaged in litigation related to them.
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![](../images/102116pics/busine39.jpg)
New York financier Lynn Tilton arrives for an appeal hearing at the
U.S. District courthouse in New York, September 16, 2015.
REUTERS/Brendan McDermid
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MBIA
not only shared information with the SEC that it gleaned during discussions to
restructure one fund but was given confidential documents Patriarch provided
during the probe against SEC policy, Tilton contends.
As a result, rather than go through with the restructuring, MBIA chose to
litigate to get control of the fund's collateral, with the SEC's approval to use
the confidential documents so long as its "fingerprints were never revealed,"
Tilton's lawyers wrote.
Randy Mastro, Tilton's lawyer, at a hearing on Wednesday said the SEC and MBIA
entered into "an unholy alliance where rules were broken."
The SEC has said sharing the documents was permitted. MBIA had no comment.
The U.S. Supreme Court on Sept. 27 rejected Tilton's bid to avoid Monday's SEC
action.
(Reporting by Nate Raymond in New York; Editing by Will Dunham)
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