Lynn Tilton slapped with SEC charges

Lynn TiltonPhoto: WireImage

Lynn Tilton, the diva of distressed lending, and her Patriarch Partners private equity firms hid from investors the poor performance of loans underlying three CLOs, regulators charged Monday.

The flamboyant financier and Patriarch raised $2.5 billion for the Zohar funds — that contain the collateralized loan obligations, or CLOs — and increased fees and other payments they received by almost $200 million in fees by defrauding the funds by hiding the true health of the loans, the Securities and Exchange Commission alleged in a 13-page order filed Monday.

Tilton, 55, who has called herself the "turnaround queen" because of Patriarch's goal of buying distressed assets and overseeing their return to good financial health, had been the subject of an SEC probe for some time and decided to fight its findings rather than reach a settlement.

"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 PE firm, through a spokeswoman, said in a statement.

"We look forward to the opportunity to vigorously defend ourselves against the SEC's allegations," the spokeswoman added.

The SEC claims Patriarch's portfolio companies failed to perform well and did not make some or all of the interest payments back to the funds over several years — a fact Tilton did not share with investors.

Tilton "intentionally and consistently directed that nearly all valuations of these assets be reported as unchanged from their valuations at the time the assets were originated," the SEC claims.

The case against Tilton will be heard in the SEC's in-house administrative court.

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