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A 2012 presentation to the IRS, for instance, shows that some of the loans were described as “speculative” in order to “justify efforts to reduce any taxes owed,” the complaint says. Some of the losses that were incorporated as Tilton’s for tax purposes included a USD 30m loss generated by American LaFrance for Zohar II and III in 2010, and over USD 20m from Global Automotive Systems in Zohar II and III in 2008, the court documents show.Īdditionally, for tax purposes, Tilton represented that many of the loans from the Zohar funds would never be paid back, according to the complaint. The documents reviewed by the banks’ lawyers from Berg & Androphy included stock certificates, limited liability company agreements, internal spreadsheets, and tax reporting information, the complaint says. The banks, two of the original investors in the Zohar CLOs, have been doggedly pursuing a fraud case against Tilton, the founder and CEO of Patriarch Partners.įollowing their analysis of millions of Patriarch documents obtained through discovery, the banks filed to amend their complaint based on additional evidence that they believe bolsters their case. The German banks on 30 August filed a motion to amend their original 2015 complaint, along with the heavily redacted amended complaint.
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“The result? Even though Tilton made tens of millions of dollars each year from Zohar Fund and Portfolio Company fees, as well as from misappropriated distributions made by the Portfolio Companies, the huge operating losses of those Companies wiped out virtually all of her tax liabilities,” the complaint goes on. “By misrepresenting to the IRS that the Portfolio Companies were an agreed-upon part of the ‘Tilton Enterprise,’ Tilton aggregated the profits and losses of all of those Companies with her own income from, among other sources, Zohar Fund collateral management fees and management and agency fees charged to the Portfolio Companies,” the complaint reads. This use of Zohar company losses in personal filings was happening even as Tilton was siphoning out tens of millions of dollars each year in the form of agency and management fees as well as preferred equity distributions, the complaint says. As part of a dispute about what should be redacted in the amended complaint, some of the redacted material appeared in documents filed publicly with the court by Tilton's lawyers. Papers filed late Friday (8 September) show that a proposed civil amended complaint from the banks – Norddeutsche Landesbank and Hannover Funding Company – heavily references the allegation that Tilton incorporated income losses at the Zohar portfolio companies into her own personal tax filings, thereby reducing her tax burden. Lynn Tilton allegedly exploited large losses at certain Zohar portfolio companies in order to reduce or avoid personal income taxes, even as she was funneling out tens of millions of dollars per year in income for herself, according to documents filed in a fraud case brought in New York by two German banks.