Lynn Tilton, the so-called Diva of Distressed who’s already defending SEC claims of overcharging customers by almost $200 million in fees, now faces fraud allegations by her clients.

Two investors in funds managed by Tilton’s Patriarch Partners LLC said in a lawsuit filed Friday that it’s “obvious” that the “vast majority of the information” they received from the firm was “false and misleading.” Hannover Funding LLC and Norddeutsche Landesbank Girozentrale are seeking at least $44 million in their lawsuit in state Supreme Court in Manhattan.

The suit against the self-professed billionaire follows the Securities and Exchange Commission’s March 30 complaint against Tilton, claiming she overcharged investors on fees collected on $2.5 billion of collateralized loan obligations, or CLOs. Tilton reported the value of the underlying loans as unchanged even though many of the companies had made partial or no interest payments for years, the SEC said.

Tilton has gained notoriety over the years for her brash management style, once explaining that she stripped and flipped men -- not companies. She answered the SEC’s lawsuit two days later by suing the agency, claiming its enforcement action violated her rights. Tilton, 56, wants to block the agency from pursuing its case in administrative court, where there’s no jury and information sharing is limited.

New Lawsuit

In the new lawsuit, the investors said they put more than $135 million into two of Patriarch’s “Zohar” CLO funds. While investors weren’t authorized to know the identity of the underlying loans, they were entitled to accurate valuation and performance data on a regular basis, they say.

The lawsuit “merely piggybacks” on the SEC allegations and Patriarch looks forward to defending itself in court, Lex Suvanto, a spokesman for the company, said in an e-mailed statement.

“The Zohar note holders are sophisticated investors that have extensive information to evaluate the cash flow performance of the funds and the performance of the underlying companies,” Suvanto said. The CLO structure “explicitly provides for the flexibility to turnaround distressed companies and create value for the funds and its noteholders.”

Norddeutsche Landesbank, is a state-owned lender based in Hanover, Germany. Hannover is its asset-backed commercial paper program, according to the company’s website. David Berg, an attorney with Berg & Androphy representing the companies, declined to comment on the suit on Monday.

Tarnish Image