Lynn tilton charged
Lynn tilton charged, A onetime young tennis star-turned-wealthy-investment adviser and her financial firms were charged with fraud Monday for allegedly misleading investors and improperly collecting nearly $200 million in fees.
Lynn Tilton, 55, and her New York-based Patriarch Partners companies hid the poor performance of loan assets in three collateralized loan obligation funds they manage, the Securities and Exchange Commission alleged in an administrative cease-and-desist proceeding.
Tilton and the companies defrauded clients by failing to value assets using the methodology they outlined to investors in offering documents for the investments collectively known as the Zohar Funds, which have portfolios of loans to distressed firms, the SEC charged.
The funds have raised more than $2.5 billion from investors, according to the SEC. They raised capital by issuing secured notes and using the proceeds to purchase a portfolio of collateral typically composed of commercial loans.
Investors were led to believe that Tilton and her companies made objective valuations of the loan assets. However, nearly all the valuations were reported to investors as unchanged from the time the loan assets were acquired, even though many of the companies had made partial or no interest payments to the Zohar Funds for several years, the SEC charged.
"As a result ... management fees and other payments to Tilton and her entities would have been reduced by almost $200 million, and investors would have gained more control over the funds' activities," the 13-page SEC filing alleged. "By applying her own discretion rather than the valuation methodology set forth in the governing documents, Tilton has avoided these consequences and taken excessive fees from the funds."
Tilton, who unlike many private equity executives has made numerous media appearances and has characterized herself as the "turnaround queen," used CNBC's Squawk on the Street broadcast to defend herself. Tilton said she wants "to live in a country where I can fight for truth without assuming that because it's the government that I'm guilty without the battle."
Barbara Laidlaw, a spokeswoman for Patriarch, issued a statement that said: "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. We look forward to the opportunity to vigorously defend ourselves against the SEC's allegations."
However, Andrew Ceresney, the SEC's director of enforcement, said 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."
The indenture for each Zohar Fund collateralized debt obligation included numeric tests that had to be met each month. Failure to meet the test standards would give investors increased rights to control the funds or remove the Patriarch collateral manager, as well as eliminate the funds' obligation to pay Patriarch's quarterly fee, the SEC alleged.
At least two Zohar funds allegedly would have failed the tests by at least the summer of 2009.
Tilton regularly receives a quarterly projection that shows the amount of interest on loans a company expects to pay. According to the SEC, "numerous emails show Tilton directing the amount of interest that a portfolio company should pay, which may or may not equal the amount that the company wishes to pay."
That "discretionary approach" was never disclosed to the funds or investors, the SEC charged. Speaking during a subsequent conference call with reporters, Ceresney said he was not permitted to discuss or identify Tilton's investment clients.
Tilton is a resident of Rumson, N.J., and Highland Beach, N.J., according to the SEC filing. A June 2014 profile by The Wall Street Journal — linked on the Patriarch Partners website — recounted her rise from a nationally ranked tennis player as a teen in Teaneck, N.J., to a financial career with stops at Goldman Sachs and Merrill Lynch.
A posting on the Patriarch Partners website states that the company's mission under Tilton's leadership is "to rebuild America one company at a time and one job at a time." That task "has been made possible through tireless work ethic, innovative spirit and an unwavering quest for truth and light where others see hopelessness," according to the website.
Tilton also promoted her business philosophy on Diva of Distressed, a reality TV program she starred in on the Sundance Channel.Although some estimates placed Tilton's net worth at around $830 million, the Journal profile said Tilton claimed the true total was more than $1 billion.
The headline of a 2011 Forbes profile of Tilton asked "Is She The Richest Self-Made Woman In America?" "There's no question I'm a billionaire," she told the magazine.
However, the Forbes report cited interviews with some former Tilton employees who spoke in whispers of a sometimes "terrifying" boss who at times erupted in rage and gave herself a 50th birthday party "where staffers did Jell-O shots off her stomach and chest."
In response to questions about those allegations, a Tilton spokesman told the magazine that "we will not respond to anonymous, vague, deliberate and frankly sexist attempts to impugn Ms. Tilton's personal and professional reputation."
A series of tweets Tilton posted last week on her @LynnTilton Twitter feed appeared to anticipate the SEC allegations. She used the postings to focus on leadership, responsibility and friends who remain loyal during tough times.
Lynn Tilton, 55, and her New York-based Patriarch Partners companies hid the poor performance of loan assets in three collateralized loan obligation funds they manage, the Securities and Exchange Commission alleged in an administrative cease-and-desist proceeding.
Tilton and the companies defrauded clients by failing to value assets using the methodology they outlined to investors in offering documents for the investments collectively known as the Zohar Funds, which have portfolios of loans to distressed firms, the SEC charged.
The funds have raised more than $2.5 billion from investors, according to the SEC. They raised capital by issuing secured notes and using the proceeds to purchase a portfolio of collateral typically composed of commercial loans.
Investors were led to believe that Tilton and her companies made objective valuations of the loan assets. However, nearly all the valuations were reported to investors as unchanged from the time the loan assets were acquired, even though many of the companies had made partial or no interest payments to the Zohar Funds for several years, the SEC charged.
"As a result ... management fees and other payments to Tilton and her entities would have been reduced by almost $200 million, and investors would have gained more control over the funds' activities," the 13-page SEC filing alleged. "By applying her own discretion rather than the valuation methodology set forth in the governing documents, Tilton has avoided these consequences and taken excessive fees from the funds."
Tilton, who unlike many private equity executives has made numerous media appearances and has characterized herself as the "turnaround queen," used CNBC's Squawk on the Street broadcast to defend herself. Tilton said she wants "to live in a country where I can fight for truth without assuming that because it's the government that I'm guilty without the battle."
Barbara Laidlaw, a spokeswoman for Patriarch, issued a statement that said: "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. We look forward to the opportunity to vigorously defend ourselves against the SEC's allegations."
However, Andrew Ceresney, the SEC's director of enforcement, said 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."
The indenture for each Zohar Fund collateralized debt obligation included numeric tests that had to be met each month. Failure to meet the test standards would give investors increased rights to control the funds or remove the Patriarch collateral manager, as well as eliminate the funds' obligation to pay Patriarch's quarterly fee, the SEC alleged.
At least two Zohar funds allegedly would have failed the tests by at least the summer of 2009.
Tilton regularly receives a quarterly projection that shows the amount of interest on loans a company expects to pay. According to the SEC, "numerous emails show Tilton directing the amount of interest that a portfolio company should pay, which may or may not equal the amount that the company wishes to pay."
That "discretionary approach" was never disclosed to the funds or investors, the SEC charged. Speaking during a subsequent conference call with reporters, Ceresney said he was not permitted to discuss or identify Tilton's investment clients.
Tilton is a resident of Rumson, N.J., and Highland Beach, N.J., according to the SEC filing. A June 2014 profile by The Wall Street Journal — linked on the Patriarch Partners website — recounted her rise from a nationally ranked tennis player as a teen in Teaneck, N.J., to a financial career with stops at Goldman Sachs and Merrill Lynch.
A posting on the Patriarch Partners website states that the company's mission under Tilton's leadership is "to rebuild America one company at a time and one job at a time." That task "has been made possible through tireless work ethic, innovative spirit and an unwavering quest for truth and light where others see hopelessness," according to the website.
Tilton also promoted her business philosophy on Diva of Distressed, a reality TV program she starred in on the Sundance Channel.Although some estimates placed Tilton's net worth at around $830 million, the Journal profile said Tilton claimed the true total was more than $1 billion.
The headline of a 2011 Forbes profile of Tilton asked "Is She The Richest Self-Made Woman In America?" "There's no question I'm a billionaire," she told the magazine.
However, the Forbes report cited interviews with some former Tilton employees who spoke in whispers of a sometimes "terrifying" boss who at times erupted in rage and gave herself a 50th birthday party "where staffers did Jell-O shots off her stomach and chest."
In response to questions about those allegations, a Tilton spokesman told the magazine that "we will not respond to anonymous, vague, deliberate and frankly sexist attempts to impugn Ms. Tilton's personal and professional reputation."
A series of tweets Tilton posted last week on her @LynnTilton Twitter feed appeared to anticipate the SEC allegations. She used the postings to focus on leadership, responsibility and friends who remain loyal during tough times.
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