Flamboyant Magnate Lynn Tilton Faces SEC Fraud Charges
American business magnate and investor Lynn Tilton and her Patriarch Partners firms are facing fraud charges filed by the Securities and Exchange Commission. The flamboyant Tilton and her firms have defrauded investors by hiding poor performance of loan assets in three collaterized loan obligation or CLO funds they manage.
‘Diva of Distressed’ Lynn Tilton Breaches Fiduciary Duties
In an announcement on March 30, SEC said that Tilton and Patriarch Partners have breached their fiduciary duties and defrauded clients by failing to value assets using the methodology described to investors in offering documents for CLO funds, which have portfolios comprised of loans to distressed companies.
According to the 13-page SEC order, Tilton raised $2.5 billion from investors and used the money to make loans to distressed companies. However, the companies failed to perform and were not able to raise the interest payments they should have raised within a number of years.
SEC is in possession of internal emails from Tilton and partners and vice versa where it was indicated that Tilton dictated how much interest each company had to pay. There are instances where she asked for payments beyond the loans according to SEC documents.
Covering poor performance and failing to employ the valuation method promised to her investors, Tilton was able to amass an estimated $200 million worth of revenue. SEC also accuse Tilton and her firm of filing false financial reports.
“We allege that instead of informing their clients about the declining value of assets in the CLO funds, Tilton and her firms have consistently misled investors and collected almost $200 million in fees and other payments to which they were not entitled. Tilton violated her fiduciary duty to her clients when she exercised subjective discretion over valuation levels, creating a major conflict of interest that was never disclosed to them,” Andrew J. Ceresney, Director of the SEC’s Enforcement Division, said in the announcement.
Patriarch Partners To Fight SEC Order
“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,” a spokeswoman for Patriarch Partners said in a statement.
“Patriarch is focused on the restructure and rebuild of deeply distressed American companies and we do this through a unique (CLO) structure that explicitly provides for the flexibility to turnaround distressed companies and create value for the Funds and its noteholders,” the spokeswoman said.
Tilton is one among the most powerful women in the business industry. She is passionate about saving jobs by saving American companies. To date, she has restructured more than 240 distressed companies and amassed a combined revenue of more than $100 billion. She also created more than 675,000 jobs.
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