Tilton's Patriarch Partners sued by the Zohar funds she created

(Reuters) - Patriarch Partners, the private equity firm of flamboyant investor Lynn Tilton, is being sued for allegedly refusing to provide financial records to the new manager of the Zohar funds that she controlled until earlier this year.

Lynn Tilton, chief executive officer of private equity firm Patriarch Partners, speaks at the 2009 Reuters Restructuring Summit in New York September 29, 2009. Tilton is in the early stages of launching a bank holding company that would target middle market bank lending. REUTERS/Mike Segar

Filed in Delaware’s Court of Chancery on Friday, the lawsuit is the latest in a series of legal challenges for Patriarch Partners, a firm with investments in more than 70 companies including Dura Automotive and Dana fragrances.

The U.S. Securities and Exchange Commission, private investors and an insurer have alleged in separate lawsuits that Tilton and Patriarch have misrepresented the health of the Zohar funds.

The latest lawsuit, filed by the Zohar funds, seeks a court order requiring Patriarch to provide key information about Zohar’s holdings that is allegedly being withheld from the funds’ new manager.

A spokesman said in a statement on Monday that Patriarch Partners has provided the new collateral manager with all required collateral management books and records. In addition, the spokesman said Patriarch has made its staff available to answer questions regarding the materials provided and to conduct follow-up searches for additional materials that the new manager has requested.

Tilton, who was briefly the subject of a reality TV show called “The Diva of Distressed,” touts Patriarch’s goal as rescuing troubled companies and preserving American jobs.

Beginning in 2003, she established the Zohar funds and raised $2.5 billion by selling securities to investors and then used that money to buy loans from companies controlled by Patriarch.

However, Zohar had no management and has paid Patriarch $500 million since the funds’ inception to act as collateral manager to select which loans that Zohar would buy, according to the Zohar lawsuit.

In March, after one of the Zohar funds defaulted on its notes, Patriarch was replaced as collateral manager by Alvarez & Marsal, a restructuring advisory firm. Tilton said at the time she looked forward to working with the new collateral manager to ensure a smooth transition.

Alvarez has been unable to obtain such basic information as a comprehensive list of Zohar’s collateral and financial reports needed to value the collateral, according to the Zohar lawsuit.

“Without the complete set of information necessary to understand what it is they actually own, the Zohar funds are left to grope in the dark, searching for their own assets and struggling to understand what they can do with them or how to properly report their true financial status to its investors,” the complaint said.

The SEC, insurer MBIA and investors have alleged in separate lawsuits that Patriarch used its position as Zohar collateral manager to modify loans to benefit Patriarch companies, but did not write down the value of Zohar’s holdings.

Reporting by Tom Hals in Wilmington, Delaware; Editing by Bernard Orr