Court Revives Ex-Wife’s Suit Against Billionaire

     (CN) – The ex-wife of billionaire hedge fund manager Steven A. Cohen may sue him for allegedly concealing $5.5 million in assets during their divorce, the 2nd Circuit ruled Wednesday.
     The federal appeals court in New York revived Patricia Cohen’s racketeering, fraud and breach of fiduciary duty claims against SAC Trading Corp. founder Steven Cohen and his brother, Donald Cohen, who also served as SAC’s treasurer.     
     Patricia said she had an inkling that Steven was lying about his income in 1991, when he claimed he was writing off an $8.7 million investment as “worthless.” Steven, through SAC, had invested the money in early 1986 with the company’s attorney, Brett Lurie, to buy real estate that would be converted to co-op apartments.
     Later that year, Steven and his brother told Patricia that the entire value of the investment had been lost, Patricia claimed.
     When the couple separated in 1989, she said Steven listed his assets at $16.9 million, including the $8.7 million investment that he claimed was “lost.”
     They divorced in 1990, and a year later, Patricia petitioned the court for more money, including increased child support payments. In an affidavit, her attorney said he and Patricia “believe that Mr. Cohen has not truthfully stated his income.”
     They thought Steven had either filtered his income through SAC or his brother, or deferred paying himself until after the split “so that his income tax return during 1989 did not show his true income.”
     Several years later, Patricia said she came across unflattering media reports about her ex-husband, including a Fortune profile that described Steven’s former employer, Gruntal & Co., as a “den of corruption.”
     Further investigation revealed a lawsuit that Steven had filed against Lurie over the co-op investment. According to Patricia, Steven received a $5.5 million settlement from Lurie that he fraudulently hid from her.
     She sued her billionaire ex, his companies and Donald Cohen in December 2009, claiming they used fraud to hide millions from her during the divorce and made a lot of his money from inside trading.
     A federal judge dismissed the lawsuit, saying Patricia filed her claims too late and failed to adequately allege fraud.
     But the 2nd Circuit disagreed on all but Patricia Cohen’s claim for unjust enrichment. It said the lower court’s reasoning “is not persuasive and reflects a misunderstanding” of the legal standard for establishing a plausible claim.
     The district court had concluded that it was possible that the defendants’ allegedly fraudulent statements — including their claim that the Lurie investment was worthless — were true. The judge suggested that Steven could have lost the $5.5 million in the year between receiving it and asserting that his net worth was $8.1 million.
     Writing for the three-judge panel, Judge Pierre Leval said “the more plausible inference was that Steven had not lost, spent, or dissipated the $5.5 million by the time he set forth his assets slightly over a year later.”
     Patricia’s complaint need only “assert facts that plausibly support the inference of fraud,” Leval wrote. “It does not require that all other conceivable possibilities be excluded.”
     The 2nd Circuit also overturned the lower court’s conclusion that the claims were barred by the four-year statute of limitations. Specifically, it disagreed with the finding that the clock started ticking in 1991, when Patricia first suspected her ex-husband of lying about his income.
     “The record includes no fact known to Patricia in 1991 that gave rise to any duty to investigate the Lurie matter,” Leval wrote. “The fact that she distrusted her former husband and thought he might be lying is not an objective fact that supports a duty to investigate.”
     The 2nd Circuit reinstated her claims for fraud, racketeering and breach of fiduciary duty, but agreed that the claim for unjust enrichment had been filed “well outside the six-year statute of limitations.”
     Steven Cohen’s hedge fund has faced civil and criminal investigations accusing at least seven current and former employees, including portfolio manager Michael Steinberg, of inside trading. SAC recently settled two inside-trading lawsuits with the Securities and Exchange Commission for $616 million.
     Cohen himself has not been charged with inside trading.

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