SAC’s Cohen Must Face Ex-Wife’s Suit, Truthfulness QueryPatricia Hurtado
SAC Capital Advisors LP founder Steven Cohen was ordered by a judge to face questions in his ex-wife’s post-divorce fraud lawsuit about times he may have been ‘untruthful,’’ including during the government’s insider-trading probe of his hedge fund.
Patricia Cohen sued her ex-husband in 2009 alleging that he concealed a $5.5 million payment he received from real estate deal pending at the time of their 1990 divorce. Steven Cohen today lost a preliminary bid to throw out the case, which was reinstated by a federal appeals court last year after being dismissed in 2011.
Cohen can be questioned under oath by his ex-wife’s lawyers about the government’s sprawling insider-trading investigation of SAC Capital, U.S. District Judge Loretta Preska in Manhattan ruled. Preska said it goes to Cohen’s credibility.
“With regard to prior instances of untruthfulness, counsel may do that,” she said during an hour-long hearing. “You’re certainly entitled to question the witness about prior acts you allege are untruthful.”
Cohen, whose hedge fund pleaded guilty and agreed to pay $1.8 billion to settle a criminal and civil insider trading cases brought by the U.S., can also be questioned about a pending administrative proceeding before the U.S. Securities and Exchange Commission, Preska said. The SEC alleged that he failed to supervise senior employees convicted of trading on illegal tips.
Patricia Cohen’s lawyer, Gerald Lefcourt, said he intends to question Cohen under oath on Dec. 10 about what he said to former SAC Capital trader Mathew Martoma during a 20-minute call which the government alleges came a day before the hedge fund owner dumped almost all of the firm’s $700 million stake in Wyeth and Elan Corp. Plc and sold the stocks short. Martoma, who was convicted of insider trading, was sentenced to nine years in prison.
Sheryl Reich, another lawyer for Patricia Cohen, argued that she has a right to explore Cohen’s involvement in other fraud schemes and test his credibility. She said they’re relevant because Cohen claimed under oath to his ex-wife during their 1990 divorce and 1991 divorce settlement negotiations that he’d lost the multimillion-dollar investment.
“We already know of numerous instances in which Mr. Cohen has been involved, which involve fraud,” Reich said. “It’s relevant in 1991, when he filed the false affidavit, but so too is it relevant in 2014, when he’s going to get on the witness stand and deny that he made the misrepresentations.”
Marty Klotz, a lawyer for Steve Cohen, argued today that the ex-wife’s lawsuit is “bogus” and should be dismissed before trial without any further questioning of his client.
“They’re asking for an opportunity to reexamine allegations of insider trading cases to see if they can come up with something colorful,” Klotz said. “This is trying to set up a complete three-ring circus in which all of the questioning is about matters that have nothing to do with the issue at hand. And it shouldn’t be permitted.”
Preska said Patricia Cohen was entitled to explore her ex-husband’s alleged prior acts of untruthfulness.
“If they want to waste their time and spend 12 hours doing that, that’s fine,” she told Klotz. “What do you care? I think they’re allowed to ask it.”
The judge also issued a preliminary ruling rejecting a request by Cohen’s lawyer to dismiss the suit. She said the request can be renewed at a later date
“That request is denied,” Preska ruled. “Without accepting either side’s characterization of the facts, it’s less than clear to me that this is a slam-dunk winner.”
Lawyers for both sides declined to comment on the decision after court.
Patricia Cohen seeks half of the allegedly hidden $5.5 million, as well as unspecified damages, arguing that her ex-husband started SAC Capital with money that was partially hers.
Lefcourt said today he will also question Steve Cohen’s brother, Donald, who is a former agent with the Internal Revenue Service and served as the couple’s accountant. Patricia Cohen also sued her former brother-in-law alleging he aided and abetted Steve Cohen’s fraud.
Patricia Cohen will be deposed after questioning of both brothers is completed, lawyers said.
Steve Cohen is seeking communications that Patricia had with two lawyers, including Stacey Napp, of Balance Point Divorce Funding, a litigation funder. He’s also asked to see his ex-wife’s e-mail correspondence with Michael Bowe, a lawyer who twice sued him and SAC Capital on behalf of Fairfax Financial Holdings Ltd. and Biovail Corp.
Cohen argued the e-mails will help prove that Patricia Cohen waited too long to file her lawsuit.
Reich told Preska that if there were any communications between her client and Balance Point, they should be off-limits to Steve Cohen because of attorney-client confidentiality.
Preska said she will review affidavits submitted by Patricia Cohen before making a ruling.
SAC Capital has changed its name to Point 72 Asset Management LP.
The case is Cohen v. Cohen, 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).