NEW YORK/BOSTON (Reuters) - Hedge fund magnate Steven A. Cohen was accused by his former wife on Wednesday of hiding millions of dollars from her and of engaging in insider trading in a high-profile merger in the 1980s.
Patricia Cohen’s allegations, described by Cohen’s spokesman as “ludicrous,” bring to the fore details from a 1986 insider trading probe in RCA shares before it was bought by General Electric for $6.3 billion.
Cohen, who is the founder of top hedge fund SAC Capital Advisors, was subpoenaed and questioned by the Securities and Exchange Commission, according to the lawsuit and documents reviewed separately by Reuters.
Cohen, who was then a young, hotshot trader at now-defunct broker Gruntal & Co, asserted his Fifth Amendment right against self-incrimination, or constitutional right to remain silent.
There were no charges brought against Cohen as a result of the probe.
In the lawsuit filed in federal court in Manhattan, Patricia Cohen is seeking millions of dollars she claims her ex-husband hid from her during their divorce proceedings some two decades ago.
Cohen’s former wife claims that since their divorce in 1989, the hedge fund billionaire “has consistently and systematically engaged in a scheme to defraud plaintiff of millions of dollars.”
A spokesman for Cohen, Jonathan Gasthalter, said: “These are ludicrous allegations made by a former spouse that are entirely without merit. It is disgraceful that a member of the bar would assist her in what can only be considered a transparent attempt to extort money.”
In the litigation papers, Cohen’s ex-wife said her former husband “received and realized substantial profits in late 1985 and early 1986 from insider trading generated by the RCA-GE transaction.”
The allegation comes at a time authorities are ramping up an insider trading inquiry that so far has centered on hedge fund Galleon Group.
They also are scrutinizing the activities of several former traders and analysts who worked at Cohen’s SAC, a top U.S. hedge fund with $12.9 billion in assets.
So far, no one currently at SAC has been charged with any wrongdoing. And in the 17 years that Cohen has built up SAC, no regulatory action has been taken against him.
Out of the roughly 800 people SAC employs in its seven offices, 29 work on legal and compliance issues.
In the suit, Patricia Cohen says her former husband had told her “he had received information in advance” of the RCA deal, but that his activities did not constitute insider trading because “he had not received information directly from the insider but from a mutual friend.”
The lawsuit claims that some of the money from the RCA trading may have gone toward investment in real estate and other assets that Cohen allegedly hid from his ex-wife in several corporations, including one called SAC Trading Corp.
“The lawsuit is about his behavior and his conduct and we think the allegations in the complaint are well grounded in fact. I am not going to get into a public name calling contest with Mr. Cohen,” said Patricia Cohen’s lawyer, Paul Batista.
GE’s acquisition of RCA ended-up being one of Wall Street’s worst-kept merger secrets. Word of a possible deal began to leak out in early December 1985. In the days leading up to the December 11, 1985 takeover announcement, shares of RCA soared by $16 to $63.
Soon after the deal was announced, the SEC began investigating reports that traders on Wall Street had been tipped off beforehand. The inquiry did result in civil charges and sanctions against several people, including a Wall Street banker who worked on the deal.
But no action was taken against Cohen, who went on to build a formidable reputation as a top trader running Gruntal’s proprietary trading desk and later SAC.
Reuters confirmed from a copy of the transcript of the SEC hearing that Cohen appeared before the agency on June 5, 1986. The 16-page transcript also confirms that Cohen asserted his Fifth Amendment right when questioned about whether he had advance word of the deal when buying shares for either Gruntal or his own trading account.
Cohen’s spokesman declined to comment on the 1986 insider trading investigation.
After distinguishing himself at Gruntal, Cohen set out on his own to form Connecticut-based SAC in 1992 with $25 million. Today, the hedge fund is an industry colossus and in its 17 years history it has had just one down year.
During their 10-year marriage, the Cohens had two children, who are adults now. Their marriage fell apart before Cohen founded SAC.
Reporting by Matthew Goldstein and Svea Herbst-Bayliss; editing by Jim Impoco, Martin Howell, Jack Reerink and Ted Kerr