Tilton: SEC ‘grossly over-reached’ on fraud charge

The ‘diva of distressed debt’ has repeated her fraud trial testimony, asserting she and Patriarch Partners should have the freedom to judge the value of her Zohar debt fund.

Patriarch Partners chief executive Lynn Tilton claims the Securities and Exchange Commission’s fraud case against her is patchy, and the regulator “grossly over-reached” when it charged her in 2015.

In post-trial briefs, the “diva of distressed debt” said it was right her firm had the freedom to judge the worth of her Zohar fund debt, while her lawyers added “an investment in Zohar Notes was really an investment in Ms Tilton’s judgement.”

Tilton and Patriarch were charged with defrauding investors. According to the regulator, they hid the weaker-than-disclosed state of a portfolio of $2.5 billion of distressed loans, while collecting $200 million in fees.

The SEC alleged Tilton used her own discretion to categorize performing-versus-non-performing loans, rather than using criteria in the loan documents.

In a three-week trial in November, Tilton argued the fund’s performance could be determined through careful review of the funds’ statements and other supporting documents.
Tilton’s lawyers argued that the SEC’s case was a simple contract dispute outside its authority, after the regulator failed to prove fraud.

The SEC wants Tilton to repay the $200 million in allegedly bogus fees, and is seeking to bar her from the securities industry.

Lawyers on both sides have until January 13 to respond to the other side’s brief. A ruling is due in early 2017.