NEW YORK (Bloomberg) -- Lynn Tilton, the so-called Diva of Distressed who’s already defending SEC claims of overcharging customers by almost $200 million in fees, must now answer fraud allegations brought by her clients.
Two investors in funds managed by Tilton’s Patriarch Partners LLC said in a lawsuit filed that the “vast majority of the information” they received from the firm was “false and misleading.” Hannover Funding LLC and Norddeutsche Landesbank Girozentrale are seeking at least $44 million in their lawsuit in state Supreme Court in Manhattan.
The suit, filed Friday, against the self-professed billionaire follows the Securities and Exchange Commission’s March 30 complaint against Tilton, claiming she overcharged investors on fees collected on $2.5 billion of collateralized loan obligations, or CLOs.
Tilton reported the value of the underlying loans as unchanged even though many of the companies have made partial or no interest payments for years, the SEC said.
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.
According to her biography on Dura’s website, Tilton 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.
Tilton has gained notoriety over the years for her brash management style, once explaining that she stripped and flipped men -- not companies. She answered the SEC’s lawsuit two days later by suing the agency, claiming its enforcement action against her violated her rights. Tilton, 56, wants to block the agency from pursuing its case in administrative court, where there’s no jury and information sharing is limited.
In the new lawsuit, the investors said they put more than $135 million into two Patriarch CLO funds. While investors weren’t authorized to know the identity of the underlying loans, they were entitled to accurate valuation and performance data on a regular basis, they say.
Richard White, a Patriarch Partners’ spokesman, didn’t immediately respond to voice-mail and e-mail messages seeking comment on the suit.
In a letter to investors, Patriarch has said it disagrees with the SEC’s claims and used a conservative methodology to value loans.