WASHINGTON (CN) - A New York-based investment adviser and her four Patriarch Funds took nearly $200 million in fees to which they were not entitled, for managing collateralized loan obligations, the SEC claimed Monday in court.
The SEC filed a cease-and-desist order against Lynn Tilton and four Patriarch Partners funds, all of which are "indirectly owned 100 percent by Tilton," three of them co-owned by a trust for Tilton's daughter.
Tilton, 55, of Rumson, N.J., and Highland Beach, Fla., raised more than $2.5 billion for her Zohar funds, the SEC said. The purpose was to improve the operations of distressed companies so they can pay off their debts and eventually be sold for a profit.
But the SEC claims Tilton did not value the CLO funds in the manner she promised investors.
"(N)early all valuations of loan assets have been reported to investors as unchanged from the time they were acquired despite many of the companies making partial or no interest payments to the funds for several years," the SEC said in a statement Monday. "Investors have not only been misled to believe that objective valuation analyses were being performed, but Tilton and her firms allegedly have avoided significantly reduced management fees because the valuation methodology described in fund documents would have given investors greater fund management control and earlier principal repayments if collateral loans weren't performing to a particular standard."
The cease-and-desist order states: "As a result, based on other provisions in the documents, 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, among other consequences."
The SEC wants Tilton to respond within 20 days, or it will begin default proceedings.
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