SEC Accuses Financier Lynn Tilton of Defrauding Investors

SEC Reuters

WASHINGTON, March 30 (Reuters) - U.S. regulators took aim at flamboyant financier Lynn Tilton and her advisory business on Monday, saying she defrauded investors by hiding the poor performance of assets underlying three collateralized loan obligation funds.

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The Securities and Exchange Commission said Tilton and her Patriarch Partners private equity firm were able to collect almost $200 million in fees by failing to properly value the assets in the funds through the methodology described to investors.

Tilton, who has referred to herself as the "turnaround queen" because of her penchant for buying distressed assets and rejuvenating them, plans to fight the SEC's charges in the agency's in-house court, a Patriarch Partners spokeswoman said.

"We are disappointed that the SEC has chosen to bring an enforcement action that is ill-founded and at odds with Patriarch's investment strategy, which was consistently disclosed since the inception of the funds," the spokeswoman said.

According to the SEC's lawsuit, Tilton, 55, and three of her Patriarch Partners investment fund companies misled investors in the three "Zohar" collateralized debt obligation funds.

The SEC said the Zohar funds raised $2.5 billion from investors and used the money to make loans to distressed companies. The companies, however, failed to perform well and did not make some or all of the interest payments back to the funds over several years.

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The SEC said that despite this, Tilton failed to use the valuation method described to investors, masking the poor performance and boosting her firm's compensation by about $200 million.

The agency also accused the firm of filing false financial reports.

"Tilton breached her fiduciary duty to her clients," SEC Enforcement Director Andrew Ceresney told reporters Monday.

Tilton is one of the more high-profile asset managers targeted by the SEC in recent years.

Known for her flashy outfits and colorful language, the former investment banker for Morgan Stanley and Goldman Sachs Group Inc has portrayed herself as a hard-charging female executive in a field dominated by men.

Patriarch Partners is known for investing in troubled companies in manufacturing and heavy industry.

The press often quoted Tilton as a valuation expert during the financial crisis.

Later, however, she clashed with Forbes after it published a series of articles raising questions about her business and accusing her of fraud. (Reporting by Sarah N. Lynch; Additional reporting by Lauren T. LaCapra and Jonathan Stempel in New York; Editing by Susan Heavey and Lisa Von Ahn)

U.S. regulators took aim at flamboyant financier Lynn Tilton and her advisory business on Monday, saying she defrauded investors by hiding the poor performance of assets underlying three collateralized loan obligation funds.

The Securities and Exchange Commission said Tilton and her Patriarch Partners private equity firm were able to collect almost $200 million in fees by failing to properly value the assets in the funds through the methodology described to investors.

Tilton, who has referred to herself as the "turnaround queen" because of her penchant for buying distressed assets and rejuvenating them, plans to fight the SEC's charges in the agency's in-house court, a Patriarch Partners spokeswoman said.

"We are disappointed that the SEC has chosen to bring an enforcement action that is ill-founded and at odds with Patriarch's investment strategy, which was consistently disclosed since the inception of the funds," the spokeswoman said.

According to the SEC's lawsuit, Tilton, 55, and three of her Patriarch Partners investment fund companies misled investors in the three "Zohar" collateralized debt obligation funds.

The SEC said the Zohar funds raised $2.5 billion from investors and used the money to make loans to distressed companies. The companies, however, failed to perform well and did not make some or all of the interest payments back to the funds over several years.

The SEC said that despite this, Tilton failed to use the valuation method described to investors, masking the poor performance and boosting her firm's compensation by about $200 million.

The agency also accused the firm of filing false financial reports.

"Tilton breached her fiduciary duty to her clients," SEC Enforcement Director Andrew Ceresney told reporters Monday.

Tilton is one of the more high-profile asset managers targeted by the SEC in recent years.

Known for her flashy outfits and colorful language, the former investment banker for Morgan Stanley and Goldman Sachs Group Inc has portrayed herself as a hard-charging female executive in a field dominated by men.

Patriarch Partners is known for investing in troubled companies in manufacturing and heavy industry.

The press often quoted Tilton as a valuation expert during the financial crisis.

Later, however, she clashed with Forbes after it published a series of articles raising questions about her business and accusing her of fraud. (Reporting by Sarah N. Lynch; Additional reporting by Lauren T. LaCapra and Jonathan Stempel in New York; Editing by Susan Heavey and Lisa Von Ahn)