By Nate Raymond

NEW YORK (Reuters) - A lawyer for financier Lynn Tilton on Thursday accused the U.S. Securities and Exchange Commission of pursuing a fraud case against the private equity chief straight out of a "fantasy world," as an administrative trial drew to a close.

During his closing argument in a Manhattan courtroom, Tilton's lawyer Randy Mastro expressed anger that the SEC had accused the founder of Patriarch Partners of fraud, given what he called the lack of evidence presented at trial.

He said that after a seven-year investigation, the SEC presented testimony from only a handful out of the dozens of investors at issue in the case, and was relying on Tilton's own testimony to support its allegations she misled them.

Mastro called the SEC enforcement division's decision to sue "offensive," and said that the evidence showed Tilton, 57, had not defrauded investors in three debt funds that loaned money to distressed companies.

"The division is living in a fantasy world," he said.

But Nicholas Heinke, an SEC lawyer, said the evidence showed Tilton and Patriarch, which is based in Manhattan, had misled investors by hiding the performance of the loans made by the three so-called Zohar collateralized loan obligation funds.

"Ms. Tilton was determined to keep what was actually happening to the loans from investors to remain in control of the funds," he said.

Known for her flashy outfits and called the "Diva of Distressed" for taking over troubled companies, Tilton has portrayed herself as a hard-charging female executive in a male-dominated field.

In 2000, she founded Patriarch, which counts among its portfolio companies MD Helicopters.

But in 2015, the SEC accused Tilton of defrauding investors in the three Zohar funds by miscategorizing companies that missed interest payments as current rather than in default, to avoid losing $200 million in management fees.

The SEC has asked Administrative Law Judge Carol Fox Foelak to force Tilton and Patriarch Partners to pay at least $200 million and to bar her from the securities industry.

Tilton denies wrongdoing. She testified that investors knew she had authority to defer or forgive interest payments that the distressed companies owed, in order to give them time to be brought back from the dead.

The three-week trial came after Tilton unsuccessfully sued to block what she called an unconstitutional proceeding before an SEC in-house judge.

Foelak is expected to rule next year, after receiving post-trial briefs due by Jan. 13.

(Reporting by Nate Raymond in New York; Editing by Bernard Orr)