SEC Charges Lynn Tilton With Fraud

The Securities and Exchange Commission has charged Lynn Tilton and her Patriarch Partners firms with fraud. The SEC alleged Tilton and her Patriarch firms breached their fiduciary duties and defrauded clients by failing to value assets that reflect their declining value. The assets were in collateralized loan obligation funds, portfolios that comprise of loans to distressed companies. The SEC also charged that in misleading investors to believe that objective valuation analyses were being performed, Tilton and her firms allegedly have avoided significantly reduced management fees. Andrew J. Ceresney, director of the SEC’s enforcement division, 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.” He said Tilton and her firm “collected almost $200 million in fees and other payments to which they were not entitled.” The three CLO funds are collectively known as the Zohar funds, which have raised more than $2.5 billion from investors. The strategy for the Zohar funds has been to improve the operations of the distressed portfolio companies so they can pay off their debt, increase in value and eventually be sold for a profit, according to the SEC. The SEC’s

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