July 12 (Bloomberg) -- SAC Capital Advisors LP founder Steven Cohen asked a court to dismiss his ex-wife’s lawsuit accusing him of running his hedge fund as a racketeering enterprise.
Patricia Cohen sued in Manhattan federal court in 2009 under the Racketeer Influenced and Corrupt Organizations Act, saying that SAC Capital was “the product of an ongoing racketeering scheme” that has engaged in insider trading, bank fraud, money laundering and other misconduct.
“Plaintiff’s claims -- which purport to make a federal RICO case out of what is really a straightforward claim that she received too little in settlement of a state court divorce proceeding -- are fundamentally and fatally flawed,” Steven Cohen’s lawyer, Martin Klotz, said today in a motion to U.S. District Judge William Pauley.
Patricia Cohen’s amended complaint was dismissed in 2011 by U.S. District Judge Richard Holwell in Manhattan, who said she took too long to bring the case. In April, the U.S. Court of Appeals in New York reinstated the suit, saying it was filed in a timely manner. The court also said she validly stated claims that her ex-husband violated the racketeering law, committed fraud and breached his fiduciary duty.
Klotz said in today’s filing that the appeals court returned the case to the lower court to decide whether the case should be dismissed for any reasons not considered by Holwell.
Pauley, who took over the case after Holwell left the bench, asked lawyers for the Cohens at a June hearing if the parties could settle the case.
Patricia Cohen’s lawyer, Josh Dratel, told the judge at the hearing that his client was open to negotiation. Klotz said Steven Cohen considered the case “utterly bogus” and was “not prepared to spend money on such a made-up suit.”
The couple, who were married in December 1979, have a daughter born in 1981 and son born in 1985, Patricia Cohen said. The couple separated in in 1988 and their divorce was completed in March 1990, Klotz said.
Steven Cohen, whose $15 billion hedge fund is at the center of a multiyear federal insider-trading investigation, hid $5.5 million from his ex-wife during their divorce, she alleged in court papers. She’s seeking half that amount as part of her divorce settlement and asked that the sum be tripled, as the RICO statute permits.
Patricia Cohen alleged that her ex-husband received advance information involving a General Electric Co. acquisition and made “substantial” profits in late 1985 and early 1986. In June 1986, Steve Cohen, under oath, refused to answer regulators’ questions about alleged insider trading, invoking his right not to incriminate himself, according to her complaint.
Klotz said Patricia Cohen failed to adequately connect the fraud she alleged in the divorce to her claims that SAC operated as a racketeering enterprise. He said she didn’t identify any pattern of racketeering activity as required under the statute and didn’t adequately shown how SAC was involved in the alleged concealment of assets by Steve Cohen during the divorce.
“If Steven misstated his finances (which he did not), he did so in his personal capacity,” Klotz said.
Klotz said Patricia Cohen “should not be permitted to transform a garden-variety (and factually meritless) fraud claim -- arising from divorce proceedings that concluded more than 20 years ago -- into a federal RICO action.”
Dratel declined to comment on today’s filing. He said he would file a response by Sept. 12.
The cases are Cohen v. Cohen, 11-1390, U.S. Court of Appeals for the Second Circuit (Manhattan), and Cohen v. Cohen, 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).
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