Financier Lynn Tilton took the stand on Tuesday to defend herself against U.S. Securities and Exchange Commission charges that she defrauded investors in three debt funds that loaned money to distressed companies.
Continue Reading Below
Tilton, the founder of private equity firm Patriarch Partners, told an SEC administrative law judge in Manhattan that investors were routinely provided information allowing them to know what steps she was taking with regard to those companies.
The SEC has accused Tilton of defrauding investors in the three collateralized loan obligation funds by miscategorizing companies that missed interest payments as current rather than in default to avoid losing $200 million in managements fees.
But Tilton, 57, said she was allowed to defer or forgive interest payments the distressed companies owed, as investors had turned to her for her expertise in turning around companies from "a place of darkness and loss to a place of profitability."
She said she sought to collect as much interest from those companies as possible without forcing them into insolvency, which would impair their future value.
"Everyone knew we were buying companies left for dead, and we were taking time to rebuild these companies," she said.
Known for her flashy outfits and colorful language and called the "Diva of Distressed" for taking over troubled companies, Tilton 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 defrauding investors in the three funds, all called "Zohar," which had raised $2.5 billion to make loans to distressed companies.
The SEC has asked Administrative Law Judge Carol Fox Foelak to force Tilton and Patriarch Partners to pay at least $200 million and to bar her from the securities industry.
Tilton denies any wrongdoing. She has taken an aggressive stance in fighting the case, suing unsuccessfully to block what she called an unconstitutional proceeding before an SEC in-house judge.
On the stand on Tuesday, her testimony was at times combative, with Tilton often saying the SEC's lawyer, Dugan Bliss, had mischaracterized her statements.
She defended her actions as collateral manager for the Zohar funds, saying investors had the information they needed about how she was dealing with the distressed companies' interest payments.
"It was obvious," she said. "It was disclosed. It was there for all to see."
(Reporting by Nate Raymond in New York; Editing by Alan Crosby)