Lynn Tilton, the founder of private equity firm Patriarch Partners, LLC, and so-called “Diva of Distressed,” is embattled in what is expected to be the largest and possibly the most contentious SEC in-house trial to date.

The trial, which commenced on October 24, 2016 and is expected to last approximately three weeks, is taking place before Administrative Law Judge Carol Fox Foelak as part of the SEC’s in-house enforcement process. Since the 2010 Dodd-Frank Wall Street Reform Act gave the SEC increased powers to handle cases against a wider universe of defendants in its in-house proceedings, the agency has opted to bring cases before in-house judges, rather than taking them to federal court, with the view that doing so is faster and more efficient. However, it has come with significant pushback from Tilton, who attempted to force the case into federal court and out of the in-house SEC proceedings by filing two federal lawsuits. Nevertheless, Tilton’s efforts proved to be unsuccessful, as the Second Circuit Court of Appeals confirmed the U.S. District Court’s decision not to exercise jurisdiction over Tilton’s challenge to the SEC. Instead, Tilton will have to wait until after the administrative proceedings to litigate the constitutional issues she has raised against the SEC proceedings.

The SEC first brought suit against Tilton and Patriarch Partners in March 2015 alleging fraud in connection with three distressed investment vehicles run by Patriarch Partners known as the Zohar funds. According to the SEC, Tilton defrauded investors by using her own “subjective, personal belief” about whether the company would be able to repay the loans or whether the companies were actually in default on interest payments. Instead of categorizing companies that missed interest payments as being in default, Tilton is alleged to have improperly characterized them as current – all so that she could allegedly collect $200 million in management fees, which otherwise would have gone to investors. In the suit, which follows a five-year investigation, the SEC seeks disgorgement of up to $200 million, making it possibly the largest case ever heard by an SEC administrative judge, and seeks to have Tilton and Patriarch Partners banned from the securities industry. Tilton denies wrongdoing, and her attorneys are vigorously arguing that she and Patriarch Partners have been unfairly targeted by the SEC. While the in-house trial is expected to last through early November, given the contentious nature of the proceedings, it is unlikely that the conclusion of the administrative proceedings will mark the end of the battle.

Tilton also faces an ongoing battle on another front – this one, over insurance coverage. After exhausting the $20 million limit of its executive liability primary policy, Patriarch Partners filed suit against Axis Insurance Co. (Axis) demanding coverage under a $5 million excess policy. However, according to Axis, Tilton’s actions conflict with policy language excluding coverage for “pending and prior” legal disputes because, at the time she applied for the additional $5 million in excess coverage in August 2011, she knew her funds were under investigation by the SEC. In fact, Axis argues that Tilton was on notice of the investigation in 2009, years before the 2012 subpoena that purportedly triggered coverage. While Patriarch Partners has taken the position in its coverage dispute that there was no allegation of a wrongful act when coverage was procured, Axis recently filed its answer to the amended complaint, as well as a counterclaim, seeking a declaration that it owes no coverage based on a prior knowledge defense, which Axis believes is supported by the discovery conducted to date. The parties have not yet set a briefing schedule in connection with motions for summary judgment.

Given the SEC’s increased scrutiny on the practices of private equity firms, this case may be part of a broader trend by the SEC to hold private equity firms, and the individuals that run them, accountable for their alleged wrongdoing. As a result, should the outcome of the Tilton case provide a further “green light” to the SEC, the agency may be emboldened to bring more cases against private equity firms in the future.