The Diva of Distressed is a divisive figure even in the halls of the Securities and Exchange Commission.
The SEC’s administrative action this week against Lynn Tilton and her firm, Patriarch Partners, was taken after a 3-2 vote among commissioners, public records show. The lack of unanimity, while not uncommon, shows that the SEC itself doesn’t consider the case a slam dunk, even though the reasons for the opposition weren’t clear.
Earlier Wednesday, Tilton countersued the SEC over the action, which alleges that her firm misled investors about the value of risky pools of corporate loans. Tilton, in her lawsuit filed in Manhattan federal court, argued that the SEC’s decision to bring the case in front of an in-house administrative court violated her constitutional rights.
Speaking in an interview with CNBC on Wednesday, she said she was “baffled” by the SEC’s action and that investigators had “completely misunderstood” her business.
At the SEC, Republican Commissioners Daniel Gallagher and Michael Piwowar opposed the action, according to public records.
Wednesday’s lawsuit is the latest turn in a battle that has put the spotlight on Tilton, who has cut a colorful figure on Wall Street with a career that included a pilot for a reality show, “Diva of Distressed.”
The SEC’s use of administrative proceedings for enforcement actions has drawn increasing scrutiny from securities lawyers in recent months. Critics of the process say it is unfair because the judges are hired by the SEC, and defendants don’t have the same opportunity to uncover evidence in their favor as they would in a federal court proceeding.
Tilton and Patriarch reported the value of the underlying loans as unchanged even though many of the companies have made partial or no interest payments for years to funds clients invested in, the SEC said in a statement Monday. The SEC said Tilton and Patriarch collected $200 million of payments to which they weren’t entitled.
In the lawsuit, Tilton said that she and her firm perform a sensitive role managing investment funds and deeply distressed debt. She said that if the SEC is allowed to proceed, the damage to the funds could be irreversible.
Judy Burns, a spokeswoman for the SEC, declined to comment about Tilton’s claims.