By filing suit against the Securities and Exchange Commission, Lynn Tilton may be trying to launch a frontal assault against the new order of American securities regulation.
As it happens, a number of legal experts think she may have a point.
Last week, the SEC announced that it was bringing charges against the so-called "diva of distress" and her firm, Patriarch Partners. The regulator alleges that she obfuscated the poor performance of some loans, collecting $200 million in unearned fees and payments along the way. Her methods of valuation analysis also violated the methodology Tilton said she would follow in key documents, the SEC alleges.
Tilton has aggressively defended herself against the specific charges, telling CNBC last month that the SEC is bringing "an ill-founded case based on financial statement technicalities."
But at the same time, Tilton is bringing her own lawsuit against the SEC—and it's one that has little to do with the allegations of which she stands accused. Rather than take Tilton to district court, the SEC has ordered that a public hearing take place before an administrative law judge, who could rule that she pay a civil penalty, return money to investors, or impose other sanctions.
Tilton believes that this is unfair. More to the point, she believes the idea is constitutionally suspect—and some law experts tend to agree.
John Coffee, a Columbia Law School professor and an expert on securities regulation, points out that administrative law judges are used by a bevy of other federal agencies, from the Federal Trade Commission to the Coast Guard.
"It's a new use of this tool, but the tool itself has been used many times," Coffee said. "It might have some ability to get them a favorable settlement, but I don't think it has a good chance of succeeding in court."