Wednesday, April 22, 2015

ALJ Puts Agency’s Case Against ‘Turnaround Queen’ Tilton on Hold

By Mark S. Nelson, J.D.

SEC administrative law judge (ALJ) Carol Fox Foelak has at least temporarily put the brakes on the agency’s administrative case against self-proclaimed “Turnaround Queen” Lynn Tilton and her firm Patriarch Partners, LLC. ALJ Foelak issued an order late this afternoon, stating only that the May 4 start date for the proceeding is postponed sine die, and a prehearing telephone conference will take place on that day instead (In the Matter of Lynn Tilton, April 20, 2015).

ALJ Foelak’s order provided no reasons for the delay. But the Commission’s rules of practice give ALJ’s discretion, for good cause shown, to postpone or adjourn a proceeding before issuing an initial decision or closing the record. Two weeks ago, SEC Chief ALJ Brenda P. Murray assigned the Tilton matter to ALJ Foelak and set May 4 as the start date of the administrative proceeding.

The Commission’s late March order initiating proceedings against Tilton alleged that she and her firm misled investors by not accurately reporting the value of losing investments in collateralized loan obligations. According to the SEC, this enabled Tilton and Patriarch to receive management fees and other payments that would have been much lower if her firm had used the correct method to calculate them. The SEC said these lapses violated the Investment Advisers Act.

Tilton also is one of six persons challenging the validity of the SEC’s administrative enforcement regime in federal court. Two of these cases have withered as the individuals there neared settlements with the SEC in their administrative proceedings.

But another pair of these cases resulted in court decisions. Laurie A. Bebo, the ex-CEO of Assisted Living Concepts, Inc., whose administrative case was set to begin today, recently asked the Seventh Circuit to overturn a federal judge’s ruling dismissing her court case against the SEC. And just last week, a federal judge in Manhattan declined to stop the SEC’s administrative proceeding against Barbara Duka, a former co-manager of the commercial mortgage backed securities group at Standard & Poor’s Rating Service.

The release is No. AP-2558.

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