NEW YORK (Reuters) -- U.S. regulators accused financier and auto-parts executive Lynn Tilton and her advisory business of defrauding investors by hiding poor performance of assets underlying three collateralized loan obligation funds.
The Securities and Exchange Commission said Monday that Tilton and several of her Patriarch Partners firms were able to collect almost $200 million in fees by not properly valuing the assets in the funds through the methodology described to investors.
Tilton is CEO of supplier Dura Automotive Systems, which was acquired by Patriarch in 2010. Dura produces shifters, powertrain components, exterior trim, stamped assemblies and various other parts.
Her biography on Dura’s website says she is “passionate about saving American jobs by saving American companies.” The website says she and affiliated investment funds have restructured 243 companies since 2000. In addition to Dura, current holdings include Spiegel Catalogs, MD Helicopters, Rand McNally, and Stila Cosmetics.
Known for her flashy outfits and colorful language, Tilton has portrayed herself as a hard-charging female executive in a field dominated by men. The former Morgan Stanley and Goldman Sachs Group Inc. banker has referred to herself as the "turnaround queen" because of her penchant for buying distressed assets and rejuvenating them.
Will fight charges
Tilton plans to fight the SEC's charges in the agency's in-house court, a Patriarch spokeswoman said.
In an administrative hearing, SEC enforcement lawyers and the defense counsel present their case before an agency judge. The losing party can appeal the decision, first to the five-member commission and ultimately to a federal appeals court.
SEC administrative proceedings are typically fast-tracked and do not take as long as a trial in a federal court. It is still possible that Tilton and the SEC could also reach a settlement before it makes it to trial.
"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 Patriarch spokeswoman said.
According to the SEC's lawsuit, Tilton, 55, and several of her investment fund companies misled investors in three "Zohar" collateralized debt obligation funds.
The SEC said the funds raised $2.5 billion from investors and used the money to make loans to distressed companies. The companies, however, failed to perform well and did not make some or all of their interest payments over several years.
In fact, the SEC said, internal Patriarch emails showed Tilton directed how much interest each company had to pay, and in some cases, the amounts she demanded did not match those due on the loans.
The SEC said she failed to use the valuation method described to investors, masking poor performance and boosting her firm's compensation by nearly $200 million.
The agency also accused the firm of filing false financial reports. The complaint does not specify how much in penalties could be at stake.
"Tilton breached her fiduciary duty to her clients," SEC Enforcement Director Andrew Ceresney said Monday.
In public records, Patriarch Partners reported assets under management of about $5.3 billion as of Feb. 28, 2014.
Tilton is one of the more high-profile asset managers targeted by the SEC in recent years.
'Diva of Distressed'
In interviews and on her reality show called "Diva of Distressed," Tilton is presented as tan and primped, wearing extravagant diamonds, fur and designer clothing brands like Roberto Cavalli and Gucci.
Tilton was said to own an Italian villa, as well as homes in New Jersey, Florida, Arizona and Hawaii. New York magazine detailed her partying with former Italian Prime Minister Silvio Berlusconi and grabbing the rear-end of former British Prime Minister Tony Blair.
Tilton's persona was captured in an infamous holiday card sent to co-workers and clients, featuring photos of her in lacy lingerie and leather, sporting a Santa hat in one and a whip in the other.
"Where do you get someone who's worth looking at and listening to?" she's quoted as saying in New York magazine's 2011 profile.
But she also clashed with Forbes after it published a series of articles around the same time raising questions about her business and accusing her of fraud.
Automotive News contributed to this report.