Financier Lynn Tilton sues SEC after it charges her with fraud

(Reuters) - Escalating her battle with the top U.S. securities regulator, flamboyant New York financier Lynn Tilton sued the U.S. Securities and Exchange Commission on Wednesday to stop it from pursuing a case charging her with defrauding her investors.

In a complaint filed in Manhattan federal court, Tilton and her firm Patriarch Partners LLC said the SEC violated the U.S. Constitution by bringing its case in an in-house administrative proceeding rather than in federal court.

Critics of administrative proceedings, which are handled by judges on the SEC payroll, say they can be unfair to defendants because discovery is limited, defense lawyers generally cannot take depositions, and there are no juries.

"I hold hope that our nation will allow a fair fight for truth, to defend integrity and intent against allegations and provides fair forums," Tilton posted on Twitter on Wednesday.

SEC spokesman John Nester was not immediately available for comment.

Tilton and Patriarch face charges that they hid poor performance of assets underlying three collateralized loan obligation funds, known as the Zohar funds, that they managed and which had raised more than $2.5 billion.

The SEC said their actions enabled the defendants to collect almost $200 million of fees to which they were not entitled.

Like others who have challenged SEC administrative proceedings, Tilton said the forum violates Article II of the Constitution because administrative law judges qualify as executive branch officers, yet enjoy job protections that can make it impossible for the President to remove them.

The SEC gained power to pursue more enforcement cases in-house through the 2010 Dodd-Frank financial reforms.

David Zornow, a lawyer for Tilton and Patriarch, was not immediately available for comment.

A self-described "turnaround queen," Tilton created Patriarch in 2000, and tries to revive troubled companies in which she invests at low prices.

In 2011, Tilton worked on a pilot for a reality TV show, "The Diva of Distressed," that was ultimately not picked up.

The case is Tilton et al v. SEC, U.S. District Court, Southern District of New York.