Fraud, Not RICO Claims, Can Proceed Against Billionaire
Observing that the case before him was one "to restore faith in the old-fashioned notion that divorce lasts forever," a federal judge rebuffed a bid by billionaire hedge fund manager Steven Cohen to dismiss fraud claims brought by his former wife related to their 1990 divorce.
While Southern District Judge William H. Pauley III (See Profile) let Patricia Cohen's common law fraud and breach of fiduciary duty claims proceed, he knocked out RICO claims against Cohen, his brother and an ex–business partner.
But Pauley delivered some barbs along the way.
"As the caption of this case suggests, this is a family dispute," he wrote at the beginning of his 21-page decision in Cohen v. Cohen, 09 Civ. 10230. "The only thing that distinguishes it from countless others is the seemingly inexhaustible legal resources that each side has brought to bear."
In summarizing his ruling, he concluded, "though treble damages are a tempting way to spice things up, civil RICO and marriage do not go together like a horse and carriage."
Patricia Cohen filed suit in 2009 against her ex-husband, the founder of prominent hedge fund SAC Capital Advisors. SAC has been at the center of a major insider trading probe and it pleaded guilty to securities fraud in November, agreeing to pay $1.2 billion in penalties. That came on top of $616 million the hedge fund paid to settle civil charges brought by the Securities and Exchange Commission. The SEC also filed a civil case against Steven Cohen last July, accusing him of failure to supervise SAC employees. Cohen has yet to be charged criminally, though others at SAC have faced charges.
The case before Pauley centers on a $5.5 million real estate settlement that Steven Cohen reached in 1987. Patricia alleged that her ex-husband failed to include the settlement in financial statements related to the couple's separation agreement and conspired to hide it from her.
Former Southern District Judge Richard Holwell originally tossed the case in March 2011, finding the claims time-barred and unsupported. But the U.S. Court of Appeals for the Second Circuit gave Patricia's case new life last year (NYLJ, April 4).
Patricia Cohen's lawyers, Kevin Roddy at Wilentz, Goldman & Spitzer and solo practitioner Joshua Dratel, filed an amended complaint in September, renewing her claims that Steven conspired with his brother and an ex–business partner to hide the value of the real estate settlement from Patricia while the Cohens' divorce was pending.
On the fraud claim that survived Pauley's ruling, Patricia Cohen alleged Steven Cohen had always led her to believe that the money invested in the real estate deal, a purportedly failed Queens condo conversion venture called the "Lurie investment," could never be recovered.