Lynn Tilton, founder of Patriarch Partners LLC, embraced new and complex forms of debt to fund her companies, and it’s those financing methods that are now in the spotlight after the U.S. Securities and Exchange Commission accused her on Monday of crossing the line, Bloomberg News reported yesterday. The SEC said that Tilton overcharged investors almost $200 million on fees she collected on $2.5 billion of collateralized loan obligations, or CLOs, that she created to help fund her various businesses. Tilton’s representatives have called the allegations “ill-founded.” At the heart of the SEC’s case is how Tilton valued the loans to companies she or Patriarch controlled that were later bundled into CLOs and sliced up into securities of varying risks. The SEC says that some of the loans should have been written down -- and the fees charged investors to manage the CLOs lowered -- since many of the companies made no interest payments, or only partial payments.
