Lynn Tilton sues SEC again, calls cases unconstitutional

September 9, 2016 2:17 PM EDT

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By Jonathan Stempel

NEW YORK (Reuters) - Lynn Tilton, the New York financier accused by the U.S. Securities and Exchange Commission of defrauding her investors, on Friday sued the regulator to stop it from pursuing unfair in-house enforcement cases against her and others.

The lawsuit filed in Manhattan federal court by Tilton and her firm Patriarch Partners accused the SEC of violating their constitutional rights to due process and equal protection.

It was filed one day after Tilton asked Associate Justice Ruth Bader Ginsburg of the U.S. Supreme Court to put the SEC in-house case against her and Patriarch on hold while she appeals a lower court ruling letting it continue.

Tilton's hearing before an SEC administrative law judge is scheduled for Oct. 24.

SEC spokeswoman Judith Burns declined to comment.

Known as the "Diva of Distressed" for turning around troubled companies, Tilton was accused by the SEC of hiding the poor performance of assets underlying her Zohar collateralized loan obligation funds, and collecting nearly $200 million in improper fees.

In addition to calling the claims meritless, Tilton sued the SEC to stop the in-house case, believing that the forum was unfriendly to defendants, relative to a federal court.

But the federal appeals court in Manhattan ruled 2-1 on June 1 that Tilton's constitutional challenge was premature because the SEC had not finished its administrative case, and thus the court where she sued lacked jurisdiction.

Friday's lawsuit seeks a declaration that the SEC's practice of trying complex enforcement cases quickly, and depriving defendants of protections they enjoy in federal court, results in a "trial by ambush" that the Constitution forbids.

Tilton is also seeking the benefit of recent SEC rule changes that she said apply only to future defendants.

Ginsburg on Friday asked the SEC to respond to Tilton's stay application by Sept. 21.

The case is Tilton et al v SEC, U.S. District Court, Southern District of New York, No. 16-07048.

(Reporting by Jonathan Stempel in New York; Additional reporting by Lawrence Hurley in Washington, D.C.; Editing by Chris Reese, Andrea Ricci and Bernard Orr)

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