By Larry Neumeister
Associated Press
NEW YORK (AP) - Prominent Wall Street executive Lynn Tilton cheated investors in failing companies of more than $200 million and should be banned from the industry, a government lawyer told a judge on Monday before her attorney belittled the Securities and Exchange Commission's claims.
SEC senior trial counsel Dugan Bliss said Tilton and her New York-based Patriarch Partners group of investment firms wrongly collected the money in fees and other payments since 2003 without notifying investors that companies were defaulting on loans the investors had made to failing companies attempting turnarounds.
Bliss said Tilton engaged in a "classic breach of fiduciary duty" when she let companies pay less interest than they owed on their loans without disclosing to investors that the companies were not current with their payments. He said investors would testify that they were misled.
"Had they known what she was actually doing, they would not have invested," Bliss said they would say on the witness stand in Manhattan federal court, where the civil proceeding is expected to last several weeks.
Bliss said the SEC is seeking to ban Tilton from the securities industry, force her to give up more than $200 million she and her companies received in fees and other payments and face other financial penalties.
In opening statements, Tilton attorney Randy Mastro mocked the SEC's position, saying the case against her would be laughable were the agency not seeking to ruin her career.
He said the fraud case was built on revisionist history as the SEC ignored that she lacked motivation to cheat investors since she was already worth $1 billion or close to it when the regulatory agency claims she began the fraud.
He said she followed rules and put $440 million of her own money into companies and investment funds, giving up all fees and dividends for two years during the financial crisis.
"She is larger than life," Mastro said of the graduate of Yale University and the Columbia Business School whose resume includes stints at Morgan Stanley, Goldman Sachs, Merrill Lynch and Kidder, Peabody & Co.
Mastro said the terms of the contracts gave Tilton wide discretion "to bring these distressed companies back from the dead" and everyone involved, including the investors, knew it.
"How could anybody have been deceived by this?" he asked. "They weren't. It's a lie."
In a statement Monday, Tilton said she was looking forward to proving the SEC's claims are "utterly meritless."
"I've never fit the mold of Wall Street and the private equity industry, and it appears that this has made me a target," she said. "But I believe that ultimately the truth will prevail."
Published: Wed, Oct 26, 2016
