SAC's Cohen must face fraud claims by ex-wife

An appeals court has revived a lawsuit by the former wife of Steven A. Cohen, founder of hedge fund SAC Capital Advisors, who accused the billionaire of hiding $5.5 million from her during proceedings that led to their 1990 divorce.

The 2nd U.S. Circuit Court of Appeals in New York said a lower court had erred in dismissing fraud-based claims by Patricia Cohen, who had sued her ex-husband in 2009.

The appeals court also revived claims of racketeering and breach of fiduciary duty, while upholding the dismissal of an unjust enrichment claim.

"I'm delighted," Howard Foster, a lawyer for Patricia Cohen, said on Wednesday. "It looks like the court agreed with us on all the major issues."

Writing for a three-judge panel, Circuit Judge Pierre Leval said Patricia Cohen had made a "plausible" allegation that Steven Cohen had concealed the $5.5 million during negotiations on a separation agreement in 1989, which preceded the divorce.

He noted that the court's decision did not address whether Patricia Cohen's fraud claims had merit.

"This is a procedural ruling and not a ruling on the merits," said Jonathan Gasthalter, a spokesman for SAC Capital Advisors. "As we have said from the outset, these decades-old allegations by Mr. Cohen's former spouse were patently false and entirely without merit. We will continue to defend against them vigorously."

Wednesday's decision marks another legal setback for Cohen, whose hedge fund has been embroiled in a broad federal investigation of insider trading.

On Friday, prosecutors charged Michael Steinberg, a veteran SAC portfolio manager at the firm, with insider trading.

Last month, the firm reached two settlements totaling nearly $616 million with the U.S. Securities and Exchange Commission, without admitting or denying wrongdoing. [ID:nL2N0CK11R] The smaller settlement has won court approval.

The divorce case revolves around a $9 million real estate deal that Steven Cohen had pursued through an entity called SAC Trading Corp.

Patricia Cohen alleged that her ex-husband had invested the money to buy New York City real estate in early 1986, only to be told later that year by Steven and his brother, co-defendant Donald Cohen, that the money was lost.

In fact, she said $5.5 million of the money had been returned to her ex-husband by January 2007, and he eventually claimed to have written off the entire investment.

She said this eventually caused him to value his net worth as of 1989 at less than $8.2 million.

Wednesday's decision overturned a March 2011 dismissal of Patricia Cohen's case by U.S. District Judge Richard Holwell, who has since gone into private practice.

The 2nd Circuit returned the case to Manhattan federal court for further proceedings.

The case is Cohen v. Cohen et al, 2nd U.S. Circuit Court of Appeals, No. 11-1390.

(Additional reporting by Nate Raymond, Jonathan Stempel and Katya Wachtel in New York; Editing by Nick Zieminski and Bernadette Baum)