Tilton Fires Back at SEC on Administrative Court Venue

Apr 1 2015 | 3:42pm ET

Billionaire private equity maven Lynne Tilton has wasted no time in firing back at the SEC.

Two days after being accused of misleading investors about the poor performance of some loans in three collateralized loan obligation (CLO) funds and allegedly collecting $200 million in fees to which they were not entitled, Tilton and her company, Patriarch Partners, have filed a counter-suit against the SEC.

In the action, Tilton and Patriarch argue that the regulator’s choice of an administrative hearing for the proceeding is a violation of the constitutional right to due process.

The SEC’s use of administrative proceedings is controversial. Such hearings generally do not usually include depositions, juries or rules of evidence, and take place in front of an SEC-appointed judge.

Moreover, they are governed by the agency’s own Rules of Practice, which has been likened to playing in a game in which the other team set the rules and brings the referees. The use of such hearings was expanded as part of the 2010 Dodd Frank financial reform legislation.

Although faster than district court, defense teams have increasingly argued that the venue puts them at a disadvantage, and deprives those accused of fundamental rights afforded them in the U.S. Constitution. 

Others have challenged the standing of administrative court judges, claiming they are de-facto executive branch officers under Article II of the U.S. Constitution. This means they are only subject to removal for good cause, and potentially cannot be removed by the President as with other Federal judges, and are thus unconstitutional.

Tilton and Patriarch argue that the case belongs in a Manhattan federal court, which would eventually put it in front of a jury.

Tilton has denied all charges contained in the SEC’s complaint, and has vowed to continue working to turn around the more than 70 companies in Patriarch's portfolio.

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