'Diva of Distressed' Lynn Tilton to Face U.S. SEC Fraud Trial

NEW YORK, Oct 21 (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.

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.

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.

Career Advancement Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Warburg Pincus 99.0%
  • Blackstone Group 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

March 2024 Private Equity

  • Principal (9) $653
  • Director/MD (21) $586
  • Vice President (92) $362
  • 3rd+ Year Associate (89) $280
  • 2nd Year Associate (204) $268
  • 1st Year Associate (386) $229
  • 3rd+ Year Analyst (28) $157
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (313) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
kanon's picture
kanon
98.9
6
dosk17's picture
dosk17
98.9
7
GameTheory's picture
GameTheory
98.9
8
CompBanker's picture
CompBanker
98.9
9
DrApeman's picture
DrApeman
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”