After being hit with fraud charges by the Securities and Exchange Commission in March last year, Lynn Tilton, who is known as the “Diva of Distress”, for turning around troubled companies, has filed a second lawsuit against the commission to stop it from pursuing allegedly unfair enforcement cases against her and others.
In the lawsuit, Tilton and her private debt firm Patriarch Partners have accused the SEC of violating their constitutional rights to due process and equal protection.
“In particular, Plaintiffs seek a declaration that the SEC’s pattern and practice of requiring enforcement cases to be tried to an initial decision in no more than 300 days regardless of their complexity, its insistence that it need not specify salient factual allegations in charging documents, its reflexive refusal to grant depositions regardless of the interests of justice, its overly narrow view of the staff’s obligation to turn over exculpatory materials, and its approval of the staff’s improper use of experts to introduce legal conclusions violates the constitutional rights of not only these Plaintiffs, but also similarly situated respondents in SEC administrative proceedings generally, as a matter of due process,” according to the filing.
In March last year, the SEC alleged that Tilton defrauded investors in three collateralized loan obligation (CLO) funds by providing false and misleading information about loan asset performance, leading Tilton and her firm to gain an extra $200 million in unwarranted fees.
Tilton appeared on CNBC last year to defend her firm, saying she was “baffled” by the charges and that investors had never raised any issues with her disclosures in more than a decade. She also echoed concerns of some in the industry that the SEC still does not fully understand private equity. “I think they’ve completely misunderstood my business,” she said.
Three federal appeals courts rejected Titlon's first lawsuit against the SEC in June, and allowed the commission to resume the case, which was on halt shortly after it began last year.
The SEC case against Tilton is scheduled for October. Both Tilton and Patriarch Partners are represented by Randy Mastro, co-chair of Gibson, Dunn & Crutcher’s litigation practice.