February 24, 2017

Tilton, Patriarch Fail To Shake $45M Fraud Suit

Law360, New York (February 23, 2017, 7:27 PM EST) — A New York state appeals court on Thursday affirmed a decision that left a fraud claim by a German bank in play against Lynn Tilton and her investment firm Patriarch Partners LLC, saying early signs that the funds in question were not what they appeared didn’t start the clock on the statute of limitations.

Norddeutsche Landesbank Girozentrale, known as Nord/LB, and an affiliate say they lost $45 million when money they gave to some of Tilton’s collateralized debt obligation funds were used not for corporate lending, as other CDO funds are, but to make private equity investments in companies that Tilton charged immense fees to manage. The suit came two months after the U.S. Securities and Exchange Commission charged Tilton and her companies with misleading investors.

Judge Eileen Bransten tossed Nord/LB’s claim of negligent misrepresentation last year, saying it had no “special relationship of trust” with Tilton that justified the claim. But both sides appealed, with Tilton’s side arguing that the remaining count for fraudulent misrepresentation was filed too long after Nord/LB was notified of the private equity elements of the CDO funds and the bank seeking to get its first claim reinstated.

But on Thursday a five-judge panel concluded 3-2 that while Tilton may not have marketed the funds, whose names all include the word “Zohar,” as “garden variety CDOs,” Nord/LB’s allegations went a step further, saying Tilton used the funds to generate profits for herself instead of her investors.

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Jenny Kim of Berg & Androphy, representing Nord/LB, called the decision “a significant step in vindicating the rights of Zohar investors.”

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The case is Norddeutsche Landesbank Girozentrale et al. v. Lynn Tilton et al., case number 2016-684, in the Supreme Court of the State of New York, Appellate Division, First Judicial Department.

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