WASHINGTON — Federal regulators filed civil fraud charges against prominent Wall Street executive Lynn Tilton and her investment firms, who are accused of concealing the poor performance of fund assets linked to loans to distressed companies.
The Securities and Exchange Commission announced the action Monday against Tilton and her Patriarch Partners group of investment firms based in New York. The SEC said Tilton and the firms have misled investors since 2003 and wrongly collected nearly $200 million in fees and other payments.
The firms denied the SEC's allegations and said they will contest them. The case will be heard before an administrative law judge at the SEC.
The SEC action against Tilton represents an example of government regulators enforcing the fiduciary standard for investment advisers. The Obama administration recently proposed tougher restrictions on brokers who manage Americans' retirement accounts, a change that would put brokers — who sell stocks, bonds, annuities and other investments — under the stricter fiduciary requirements for investment advisers.
The agency said Tilton violated her fiduciary duty to clients — the legal obligation of investment advisers and managers to put their clients' financial interests first. Tilton did not disclose that she had a conflict of interest because she controlled the values that were set for three funds' assets, the SEC said.
Tilton, 55, known for her flamboyant dress and outspoken manner, has often appeared as a commentator on CNBC.
Despite the assets' poor performance, Tilton has "intentionally and consistently directed" that nearly all their values be reported in financial statements as unchanged from the time they were acquired by the funds, the SEC said in an administrative order.
The three funds are linked to bundled securities known as collateralized debt obligations, which in this case combine slices of loans to distressed companies with varying levels of risk.
