* Patricia Cohen can pursue lawsuit over divorce
* Fraud, racketeering claims revived
* SAC says allegations without merit
By Bernard Vaughan
NEW YORK, April 3 (Reuters) - A U.S. appeals court has revived a lawsuit by the former wife of Steven A. Cohen, founder of hedge fund SAC Capital Advisors, who accused the billionaire of hiding $5.5 million from her during proceedings that led to their 1990 divorce.
The 2nd U.S. Circuit Court of Appeals in New York said a lower court had erred in dismissing fraud-based claims by Patricia Cohen, who had sued her ex-husband in 2009.
The appeals court also revived claims of racketeering and breach of fiduciary duty, while upholding the dismissal of an unjust enrichment claim.
"I'm delighted," Howard Foster, a lawyer for Patricia Cohen, said on Wednesday. "It looks like the court agreed with us on all the major issues."
Writing for a three-judge panel, Circuit Judge Pierre Leval said Patricia Cohen had made a "plausible" allegation that Steven Cohen had concealed the $5.5 million during negotiations on a separation agreement in 1989, which preceded the divorce.
He noted that the court's decision did not address whether Patricia Cohen's fraud claims had merit.
"This is a procedural ruling and not a ruling on the merits," said Jonathan Gasthalter, a spokesman for SAC Capital Advisors. "As we have said from the outset, these decades-old allegations by Mr. Cohen's former spouse were patently false and entirely without merit. We will continue to defend against them vigorously."
The revival of the lawsuit comes amid mounting pressure on Steven Cohen over an insider trading investigation that led to last Friday's arrest of Michael Steinberg, one of Cohen's closest confidantes at SAC Capital.
Steinberg pleaded not guilty to charges of securities fraud and conspiracy over alleged insider trading in computer company Dell Inc and chipmaker Nvidia Corp. The charges made him the ninth person implicated or charged with insider trading while working at Cohen's $15 billion hedge fund.
Also in March, SAC affiliates reached two civil insider trading settlements totaling nearly $616 million with the U.S. Securities and Exchange Commission.
One of the civil settlements has won court approval. SAC neither admitted nor denied wrongdoing in either case. Steven Cohen has not been accused of wrongdoing.
REAL ESTATE DEAL
The divorce case revolved around a $9 million real estate deal that Steven Cohen had pursued through an entity called SAC Trading Corp.
Patricia Cohen alleged that her ex-husband had invested the money to buy New York City real estate in early 1986, only to be told later that year by Steven and his brother, co-defendant Donald Cohen, that the money was lost.
In fact, she said $5.5 million of the money had been returned to her ex-husband by January 2007, and he eventually claimed to have written off the entire investment.
She said this eventually caused him to value his net worth, as of 1989, at less than $8.2 million.
Wednesday's decision overturned a March 2011 dismissal of Patricia Cohen's case by U.S. District Judge Richard Holwell, who has since gone into private practice.
Holwell had ruled that Patricia Cohen failed to show that her former husband misled her about the $5.5 million or that he was involved in civil racketeering. He also said Patricia Cohen waited too long to bring her claims.
But the appeals court found that Patricia Cohen did not wait too long, in part because she claimed to have learned about the $5.5 million payment in a chance discovery in 2008.
It also said Holwell ruled correctly in dismissing an unjust enrichment claim brought by Patricia Cohen. The 2nd Circuit returned the case to Manhattan federal court for further proceedings before a different judge.
In court papers, Patricia Cohen had accused Steven Cohen of launching SAC Capital in 1992 in part with proceeds from an alleged illegal insider trading tip in 1986 about General Electric Co's acquisition of RCA.
Steven Cohen had been a top trader at Gruntal & Co at the time, and according to a deposition transcript during an SEC probe repeatedly asserted his Fifth Amendment right against self-incrimination.
The SEC ended the investigation without filing charges against Cohen. Patricia Cohen's allegations over the divorce do not address recent probes involving SAC.
The case is Cohen v. Cohen et al, 2nd U.S. Circuit Court of Appeals, No. 11-1390.