SEC targets Patriarch for CLO valuations

Patriarch Partners, the private debt firm led by turnaround investor Lynn Tilton, is facing potential enforcement action from the US Securities and Exchange Commission (SEC) over the valuations of three collateralized loan obligations (CLOs).

Patriarch told investors that SEC staff had made a preliminary decision to recommend an action against Tilton and the firm, according to a letter sent to LPs. The firm has hired an investment banker to begin talks with investors about restructuring the CLOs.

“We continue to cooperate with the SEC in their investigation and continue to engage in discussions with the SEC staff,” a spokesperson for Patriarch said in an email to pfm.

The SEC claims that Patriarch misstated the fair value of the underlying loans and gave investors improper financial statements for the CLOs Zohar I, II and III. In the letter, Patriarch said that it disagrees with the SEC’s position and has “employed what it believes to be a conservative methodology” for valuing its loans because it recognizes neither gains nor losses, according to Bloomberg.

New York-based Patriarch was founded by self-proclaimed “turnaround queen” Tilton in 2000 following her stints at Goldman Sachs, Merrill Lynch and Amroc Investments. Tilton’s profile was boosted when The Sundance Channel was set to air a reality show starring her as the “Diva of Distressed.” The show was pulled in 2011 before any episodes aired following a series of critical reports about Tilton, according to Forbes. A spokesperson for Patriarch told pfm that Tilton chose not to proceed with the show in order to “stay focused on running her business.”