* Patricia Cohen can pursue lawsuit over divorce
* Fraud, racketeering claims revived
* SAC says allegations without merit
By Bernard Vaughan
NEW YORK, April 3 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
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
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
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.