[Photo: ErikaBarker / Wikimedia Commons]

Lynn Tilton, founder of NY-based Patriarch Partners, finally began her SEC Administrative Trial on Monday.  The SEC seeks to bar Tilton from the industry and force her and Patriarch Partners to pay at least $200 million. 

Ms. Tilton is accused of defrauding investors in 3 so-called Zohar collateralized loan obligation funds, which had raised $2.5 billion to make loans to distressed companies. The SEC contends Tilton misled investors by directing that valuations of assets underlying the Zohar CLO funds remain unchanged despite their poor performance. Rather than categorizing companies that missed interest payments as in default, Tilton improperly categorized them as current to avoid, among other things, the loss of $200 million in managements fees.

Randy Mastro, Tilton's lawyer, blasted the SEC charges that she defrauded investors in 3 debt funds as "ludicrous." Mastro added, "It's a theory so ludicrous that it would be laughable if not for the stakes.” He said the funds' governing documents gave Tilton the ability to change interest rates paid by the distressed companies, as Tilton sought to bring them "back from the dead." Their interest payments were also routinely disclosed, he said.

Lynn Tilton, known for her flashy outfits and colorful language, is called the "Diva of Distressed" for taking over troubled companies. She has portrayed herself as a hard-charging female executive in a male-dominated field.  In 2000, she founded Patriarch Partners, which counts among its portfolio companies MD Helicopters and Dura Automotive.

The administrative trial, which is expected to last 3 weeks, comes after a failed attempt by Tilton to sue to block what she called an unconstitutional proceeding before an SEC in-house judge in a fast-tracked venue that the agency has increasingly used. Critics call it unfair to defendants.