SAC Capital Advisors LP founder Steven Cohen won dismissal of his ex-wife’s racketeering lawsuit claim that he defrauded her during their divorce, with the rest of her case allowed to proceed.
Patricia Cohen sued her ex-husband in 2009, claiming he ran Stamford, Connecticut-based SAC Capital as a racketeering enterprise. She said the hedge fund engaged in acts such as insider trading, bank fraud and money laundering in violation of the Racketeer Influenced and Corrupt Organizations Act.
U.S. District Judge William H. Pauley today dismissed the RICO claim. He allowed other fraud allegations against Steven Cohen and his brother Donald to move toward trial.
“This is a case to restore faith in the old-fashioned idea that divorce is something that lasts forever,” Pauley said. “Indeed, factoring in Patricia’s 1991 motion, the Cohens’ legal battles have covered a span over twice the length of their marriage. But though treble damages are a tempting way to spice things up, civil RICO and marriage do not go together like a horse and carriage.”
Pauley allowed Patricia Cohen’s claim that her former husband breached his fiduciary duty, as well as one that Donald Cohen aided his brother. The judge dismissed a claim that Donald Cohen breached his fiduciary duty.
According to the suit, Patricia and Steve Cohen were married in 1979 and Cohen in 1986 created SAC Trading Corp., of which he was sole shareholder.
Patricia Cohen alleged that Cohen placed all of the marital assets, save their apartment, into the company. The couple separated in 1988 and were divorced in 1990.
“We are pleased that the court threw out Mrs. Cohen’s RICO claims,” said Jonathan Gasthalter, a Cohen spokesman at Sard Verbinnen & Co. “We will continue to defend against her equally specious fraud and breach of fiduciary duty claims.”
During the marriage, Patricia Cohen said, her ex-husband invested more than $8.7 million in marital assets from SAC to purchase other New York City apartments which were converted into co-ops.
She alleged that while Steven Cohen claimed the investment was a complete loss, he was repaid about $5.5 million.
During the divorce and in later discussions about spousal maintenance, Patricia Cohen claimed Steven Cohen concealed the existence of the funds from her and she didn’t discover the alleged until 2006.
Donald Cohen was accused of aiding and abetting his brother after being named by Steven Cohen as SAC’s accountant and treasurer. She also alleged her ex-husband engaged in insider trading in 1985.
In November, SAC Capital agreed to plead guilty to securities fraud and end its investment-advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm. Cohen hasn’t been charged.
Patricia Cohen filed her suit in December 2009 and amended the complaint in 2010. Her suit was dismissed in 2011 by U.S. District Judge Richard Holwell, who said Patricia Cohen took too long to bring her claims.
In April, the U.S. Court of Appeals in New York reinstated the suit, saying it was filed in time. Without ruling on the merits of her case, the court said she had validly asserted claims that her ex-husband violated the racketeering law, committed fraud and breached his fiduciary duty.
Pauley today called Patricia Cohen’s racketeering claims “a bridge too far” and said her suit “fails to allege any horizontal relationship” among alleged schemes.
“Patricia Cohen cannot take on the mantle of private attorney general just because her ex-husband is a public figure and SAC is in prosecutors’ cross hairs,” Pauley said. “Having alleged no relation between the scheme against Patricia and SAC, Patricia fails to plead a pattern of racketeering activity.”
While the case was on appeal, Holwell left the bench for private practice. The case was reassigned to Pauley in April.
“Patricia is grateful for the decision and looks forward to the case progressing in court,” her lawyer Joshua Dratel said. “We look forward to engaging in the discovery process.”
The case is Cohen v. Cohen, 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).