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Friday, May 1, 2015

Securities Watchdog, Lynn Tilton Battle Over Allegations

MD Helicopters head Tilton wants “a fair fight for truth” with
the SEC. Photo by
Ernie Stephens
MD Helicopters head Lynn Tilton is battling with a U.S. securities watchdog over its charges that Tilton and her private equity firm have defrauded investors of nearly $200 million since 2003.

The Securities and Exchange Commission issued the charges on March 30 and called for Tilton and Patriarch Partners to answer them in a public hearing. The SEC said Tilton is “the CEO and sole principal” of Patriarch.

Two days later, Tilton sued the federal regulator in federal court in Manhattan, arguing that its procedures violated the U.S. Constitution. On April 16, she petitioned a federal judge to block the SEC immediately from pursuing the case. The SEC had until April 30 to answer Tilton’s suit.

Specifically, she argued that the SEC should be required to prosecute the charges in a U.S. district court rather than having it heard by an administrative law judge appointed by the SEC by bringing its case in an in-house administrative proceeding rather than a court.

Tilton argued that a trial in civil court would ensure the case is heard by an independent judge and jury, which would enable her to mount a vigorous defense to charges that she says are frivolous.

“I hold hope that our nation will allow a fair fight for truth, to defend integrity and intent against allegations and provides fair forums,” Tilton posted on Twitter.

The SEC’s charges focus on activities at Patriarch Partner and how it and Tilton report to investors on the performance of the companies owned by their investment funds.

The SEC’s documents do not allege wrongdoing at any of the owned companies, including MD. Rather, they concern the activities of three investment vehicles named Zohar funds. Controlled fully by Tilton, the SEC said, these “collateral loan obligations” raised more than $2.5 billion, which Tilton used “to buy or make loans to primarily mid-sized distressed companies.” Tilton is the owner and CEO of MD Helicopters.

At the heart of the SEC’s action is its allegation that Tilton and Patriarch failed to accurately report the financial performance of and loan payments by companies in the Zohar portfolios. Their management fees were based in part on that performance and those loan payments. In addition, the SEC said, subpar performance by the “portfolio companies” could enable investors to gain greater control over the funds’ activities.

“Many of the distressed companies [that make up the Zohar funds’ assets] have performed poorly and have not made interest payments or have made only partial payments of the years,” the SEC said in its complaint. Had that performance been reported accurately, it added, “management fees and other payments to Tilton and her entities would have been reduced by almost $200 million.”

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