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Lynn Tilton wants U.S. judge to block SEC fraud case: Reuters

A lawyer for New York private equity executive Lynn Tilton urged a U.S. judge on Monday to block the U.S. Securities and Exchange Commission from trying her before an administrative judge for defrauding investors, Reuters reported.

Tilton, the head of private equity firm Patriarch Partners, appeared in court as one of her lawyers asked U.S. District Judge Ronnie Abrams in Manhattan to declare the SEC’s in-house court system unconstitutional.

“She’s facing an administrative proceeding that is unconstitutional at its core,” said Christopher Gunther, a lawyer for Tilton.

Lawyers for the U.S. Justice Department defending the SEC countered that the system was proper, and that any challenge Tilton wanted to make would need to wait until after her trial, which is set for Oct. 13.

“You still have to go through the process, and then you get judicial review,” said Jeannette Anne Vargas, a Justice Department lawyer.

The hearing marked the latest challenge in federal court to the SEC’s use of administrative proceedings, which have grown since the 2010 Dodd-Frank Wall Street law provided the agency with the power to bring more cases in-house.

SEC administrative law judges preside over the cases, which are typically fast-tracked and lack some protections that defendants typically enjoy in more traditional court settings.

Defense attorneys complain the process is unfair. They point to statistics showing the SEC last year won 100 percent of administrative cases before its own judges.

Tilton, 56, is one of the most high-profile defendants to bring a lawsuit seeking to challenge the constitutionality of the administrative process.

Following a five-year investigation, the SEC charged Tilton and Patriarch in March, saying they hid the poor performance of assets underlying three “Zohar” collateralized loan obligation funds they managed that had raised more than $2.5 billion.

The SEC said those actions enabled Tilton’s firms to collect almost $200 million of fees and other payments to which they were not entitled.

Tilton and Patriarch deny wrongdoing, saying their investment strategy was consistently disclosed from the funds’ inception.

Tilton sued the SEC in April, arguing its in-house court violates the Constitution because administrative law judges qualify as executive branch officers, yet enjoy job protections that can make their removal by the president impossible.

The SEC’s lawyers argue the judges constitute not officers, but employees who have only the authority the commission itself delegates to them.

The case is Tilton v. Securities and Exchange Commission, U.S. District Court, Southern District of New York, No.


(Reporting by Nate Raymond in New York. Editing by Andre Grenon; Additional editing by Lawrence Aragon for Buyouts)