Lynn Tilton, CEO of MD Helicopters, spent recent days testifying in a New York courtroom on federal charges that she and her Patriarch Partners holding company defrauded backers of three investment funds.
The U.S. Securities and Exchange Commission, in the proceeding, has asked Administrative Law Judge Carol Fox Foelak to order Patriarch Partners and the celebrity “distressed debt” investor to pay at least $200 million and to bar Tilton from the securities industry, according to several press reports. The Wall Street Journal on Nov. 2 called the proceeding “a trial that could end her career in the securities industry.”
Tilton bought MD Helicopters through Patriarch in 2005.
The Journal reported that Tilton, under questioning by SEC lawyer Douglas Bliss on Nov. 2, testified, “Your allegations against me have made my job difficult. You have changed my world completely.”
Tilton had challenged the SEC proceeding, arguing that it violated her right under the U.S. Constitution to have the securities watchdog’s charges heard by an impartial jury and judge. The administrative law judges who hear cases like Tilton’s are appointed by the SEC. But a federal court rejected Tilton’s argument.
The proceeding began Oct. 24 and is expected to last three weeks.
The SEC allegations center on three so-called collateralized loan obligation funds, called Zohar funds, that Tilton and Patriarch set up to raise funds for buying distressed companies like MD. The commission charges that she and Patriarch hid losses of companies covered by those funds and their failure to re-pay loans to the funds, which the SEC says undermines the funds’ values and their backers’ investments.
Tilton and Patriarch maintain the fund investors were kept up to date on the funds’ status and regularly given information with which they could assess the covered companies’ performance.
They also argue that the structure of the funds gave Tilton, as their manager, wide latitude to adjust financial terms with the covered companies to promote the recovery of their operations and the backers’ investments.
"Everyone knew we were buying companies left for dead, and we were taking time to rebuild these companies," she testified, according to the Reuters news service.
