%1

A bankruptcy judge ruled that distressed company manager Lynn Tilton must continue to support efforts to find buyers for troubled companies that owe money to her bankrupt Zohar investment funds, WSJ Pro Bankruptcy reported. The ruling from Bankruptcy Judge Karen Owens was a blow to Tilton, who argued unsuccessfully that her duty to try to sell those companies ends when a temporary legal settlement with Zohar creditors terminates. A lawyer for Tilton said that she would appeal. The peace pact will expire soon, Judge Owens said at a hearing Friday. The ruling marked the latest in a long series of legal contests involving Tilton’s distressed investing empire. She founded the Zohar funds to raise money from investors to lend to a collection of troubled businesses. The Zohar funds are trying to collect $1.8 billion they owe those investors. But sales of two of companies linked to Tilton brought in less than $150 million — well short of what was needed to extend a standstill agreement between her and her Patriarch Partners management firm on the one hand and the Zohar funds on the other.

Wall Street could soon get a key victory as regulators are considering ripping up a rule that’s forced banks to set aside billions of dollars for swaps trades, Bloomberg News reported. At issue is a requirement approved during the Obama administration that’s made lenders post tens of billions in margin when engaging in derivatives transactions with their own affiliates. Industry lobbyists have long argued that the demand, which came out of the 2010 Dodd-Frank Act, is redundant and puts U.S. banks at a competitive disadvantage to overseas rivals. The Federal Deposit Insurance Corp. will hold a public meeting today to propose eliminating the margin requirement. Other agencies, including the Federal Reserve and the Office of the Comptroller of the Currency, are also expected to recommend scrapping the rule, said the people who asked not to be named the proposal hasn’t been publicly disclosed. The FDIC announced last week that its board would meet Sept. 17 to vote on a swap margin proposal without providing any further details. The margin demand, implemented in 2015, has tied up $39.4 billion, according to industry estimates. That’s prompted major swap dealers, such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., to make the rule’s elimination a lobbying priority. It would likely be months before regulators scrap the margin requirement. That’s because once the FDIC and other agencies issue their proposals, the public will have an opportunity to submit comments before a final rule could be put in place.

Seven states asked a federal court yesterday to invalidate a regulation that requires stockbrokers to disclose more about conflicts of interest that could influence their financial advice, claiming that the rule is weak, the Wall Street Journal reported. The lawsuit, filed in Manhattan federal court by the states’ Democratic attorneys general, illustrates how a rule intended to protect mom-and-pop investors has become a political lightning rod for the Securities and Exchange Commission. The states and consumer advocates generally insist the rule is too weak to help clients; the SEC says that it improves investor protections while preserving the broker-dealer industry’s business model. The plaintiffs argue the SEC exceeded its authority to craft the rule by taking an approach that deviates from a model authorized by the 2010 Dodd-Frank financial overhaul law. The statute said that brokers could be required to follow the same standard of conduct that constrains investment advisers. Investment advisers must continually monitor their clients’ best interest, while the brokers’ duty is tied only to specific recommendations. The SEC wound up not requiring brokers to follow the stricter standard, although regulators say the rules for brokers and advisers are now closer than they have ever been. While brokers and advisers are governed by two different standards, the industries have significant overlap and many households are confused by the difference between them. Most Wall Street firms offer both account types.

A lawsuit is accusing a New York business consultant known for throwing lavish wine parties at five-star eateries like Daniel for bilking Wall Street executives out of millions, the New York Post reported. Omar Khan, who runs the Sensei International consulting firm on Park Avenue, used his fancy Rolodex to stage wine-fueled shindigs that lured more than a dozen captains of industry into a “Ponzi-like scheme,” according to the lawsuit filed in New York State Supreme Court yesterday. The suit claims that Khan met many of his alleged victims at his own parties, which “centered around vintage wines and expensive cuisine.” Khan then used his connections — as well as claimed ties to famous names like Philippe Rothschild of the Mouton winery — to convince his alleged victims to invest in his growing events business, the suit said. In addition to Robert Van Brugge, CEO and chairman of Sanford C. Bernstein, victims include Kresimir Penavic, a former senior research scientist at Renaissance Capital, the $110 billion hedge fund founded by James Simons; Robert Gelfond, director at the Cato Institute; Peter Slagowitz, CEO of Spurs Capital; and Lorine Schaefer, a vice president at Morgan Stanley, court documents say.

RAIT Financial Trust has filed for chapter 11 bankruptcy and said it plans to sell its assets to a buyer affiliated with Fortress Investment Group LLC for $174.4 million, the Wall Street Journal reported. The Philadelphia-based real-estate investment trust, which manages commercial real-estate loans and properties, sought protection from creditors on Friday in U.S. Bankruptcy Court in Wilmington, Del. The chapter 11 filing comes less than two weeks after RAIT was told that it had defaulted on bonds due in 2019 and 2024, according to a Securities and Exchange Commission filing. Those bonds have combined principal outstanding of about $120 million, the filing said. The company’s bankruptcy petition lists both assets and liabilities ranging from $100 million to $500 million.

Turnaround executive Lynn Tilton is headed toward trial in New York this fall, after failing to block a long-running lawsuit from an early investor in her Zohar funds, investment vehicles meant to make loans to distressed companies, WSJ Pro Bankruptcy reported. German bank Norddeutsche Landesbank Girozentrale, or Nord, the investor, sued Tilton in 2015, around the time that the U.S. Securities and Exchange Commission filed civil fraud charges against her. Tilton beat the SEC’s case, but, in a ruling this week, Judge Joel Cohen of the New York Supreme Court said that the win against the agency on the civil fraud charges won’t protect her from Nord’s lawsuit. “This Court previously determined that the SEC proceedings were ‘primarily concerned with whether Tilton misled investors about the fees they owed by making the Zohar Funds appear more valuable than they actually were,’ and ‘did not necessarily reach the issue of whether Defendants misrepresented the purpose, operation and management of the Zohar Funds,’ as alleged here,” Judge Cohen wrote.