Claims of Insider Trading From Trader’s Ex-Wife

This is a story about money and marriage on Wall Street — one about a fugitive, a billionaire, an ex-wife and her lawsuit.

 By JENNY ANDERSON and ZACHERY KOUWE

Published: December 16, 2009 
 
This is a story about money and marriage on Wall Street — one about a fugitive, a billionaire, an ex-wife and her lawsuit.
 
It begins happily enough, 30 years ago this month, when a Wall Street trader named Steven A. Cohen married his sweetheart Patricia Finke.
 
 
Today, Mr. Cohen is among the world’s richest hedge fund managers, with a $6 billion fortune. And Ms. Cohen, whom he divorced long ago, is leveling some startling accusations.
 
In a lawsuit filed Wednesday, Ms. Cohen claims her ex-husband hid millions of dollars from her — a common enough complaint as big-money divorces go.
 
But here the story gets a little weird. Some of those millions, Ms. Cohen claims in her suit, were reaped through insider trading in the 1980s.
 
And then it gets even weirder. To hide his millions, the complaint asserts, Mr. Cohen funneled money to a New York real estate operator who was later convicted on fraud charges and then fled to Costa Rica, where he was eventually tracked down.
 
If Ms. Cohen’s claims are shocking, her motive is perhaps less so. She wants money — lots of it. She is seeking $300 million.
 
As in other divorce cases involving prominent business figures, the case threatens to put on a spotlight on an ex-spouse’s private business dealings.
 
In her complaint, Ms. Cohen outlines what she characterized as a long-running racketeering scheme run by Mr. Cohen. She claims her former husband lied under oath about his net worth, conducted mail and wire fraud and concealed from her and the Supreme Court of New York millions of dollars that he possessed in 1990, thus reducing her divorce settlement.
 
Even in this post-Madoff era, the accusations might seem outlandish. Mr. Cohen, known as Stevie, is one of the nation’s most successful money managers. With a $13 billion hedge fund and a sumptuous Connecticut estate, he is, at 53, a Wall Street legend.
 
All of this comes at an uncomfortable moment for Mr. Cohen and his company, SAC Capital Advisors. Since federal prospectors began making arrests in a major insider trading investigation in October, SAC, which is based in Stamford, Conn., has been linked to the case.
 
A former SAC analyst has pleaded guilty on charges related to insider trading that occurred years after he left the firm and has agreed to provide any information he might have about insider trading that occurred when he was at SAC. No current SAC employee or manager has been charged with wrongdoing.
 
Responding to the suit, a SAC spokesman said Wednesday in a statement: “These are ludicrous allegations made by a former spouse that are entirely without merit. It is disgraceful that a member of the bar would assist her in what can only be considered a transparent attempt to extort money.”
 
Ms. Cohen declined to comment for this article, but her lawyer, Paul Batista, did not mince words.
 
“What I look forward to most is the day when Steve Cohen has to face 12 people on a jury and have to answer for what he did to his former wife,” Mr. Batista said.
 
The brouhaha opens a window into life of one of Wall Street’s most secretive characters. Mr. Cohen is rarely seen in public. He lives in his own private Xanadu — a 14-acre estate, complete with a basketball court and ice rink, in ultra-wealthy Greenwich, Conn.
 
He has also amassed one of the world’s most significant collections of 20th Century art, with masterpieces by the likes of Jackson Pollock, Damien Hirst and Eduard Munch. He and his current wife, Alexandra, have four children.
 
While Mr. Cohen was making his name and fortune, his former wife lived in relative obscurity, on the Upper West Side of Manhattan. She raised the couple’s two children, now in the 20s, and dabbled in real estate.
 
In her complaint, filed in New York’s Southern district, Ms. Cohen focuses on events that occurred when her ex-husband worked at Gruntal & Company, a small investment bank. His record at Gruntal is not entirely clean. In 1995, the New York Stock Exchange censured him for inflating the price of a penny stock. The manipulation took place in 1991, after the couple divorced.
 
Ms. Cohen, however, claims her former husband broke the rules as far back as the 1980s. And she asserts that for two decades he hid millions of dollars from her with the help of Brett K. Lurie, a lawyer for Mr. Cohen who became a partner in real estate deals.
 
And Ms. Cohen claims that her former husband did not just hide things from her — he also hid them from the authorities.
 
Mr. Lurie, who was convicted in 1994 on a range of charges, could not be reached for comment on Wednesday.
 
Ms. Cohen is pursuing her case under a civil version of the RICO laws that are often used against organized crime. It is an highly unusual tactic in a divorce matter, lawyers said, and its success is far from certain. Lawyers uninvolved in the case said they could remember few instances were civil RICO laws were used in a case related to a divorce.
 
“It’s very uncommon,” said Allan D. Mantel, the immediate past president of the American Academy of Matrimonial Lawyers and a lawyer at Stein, Riso, Mantel.
 
That so much time has passed since the divorce also hurts Ms. Cohen’s case, he said. The statute of limitations for mail fraud and wire fraud under civil RICO is four years, though lawyers say that if the fraud was actively concealed, the court could open the statute of limitations.
 
“The longer it goes, the worse it gets,” Mr. Mantel said.
 
Ms. Cohen, however, seems unbowed. She has spent three years preparing her case, which she began after seeing a “60 Minutes” episode about Mr. Cohen.
 
She claims in her suit that in 1985, while they were married, Mr. Cohen confessed to her that he received inside information on the takeover of RCA by General Electric. When she asked him if trading on such information would be illegal, Mr. Cohen said that that he knew that the source was a former classmate of his from Wharton. But he obtained the information from a mutual friend, so he was not involved in insider trading.
 
Mr. Cohen told her that he had made substantial profits on the trade and assured her that insider trading was only a civil matter, not a criminal one, according to her complaint. In 1986, Mr. Cohen invoked his Fifth Amendment rights when testifying about his trades before the Securities and Exchange Commission.
 
Ms. Cohen goes on to claim that Mr. Cohen lied to her about SAC’s predecessor, SAC Trading, which he opened in 1986. He told her at the time that he was still employed by Gruntal and that SAC held no liquid assets. In fact, her complaint asserts, Mr. Cohen had struck out on his own.
 
Ms. Cohen also claims that Mr. Cohen hid money through real estate transactions involving Mr. Lurie. Her former husband also shifted millions of dollars into an account at Pan American Bank in Miami, the complaint says.
 
When the couple divorced, Mr. Cohen stated that he had a net worth of $16.9 million. But $8.7 million of that as “worthless,” he said, because of a bad real estate deal.
 
According to court documents related to that deal, Mr. Cohen had invested in eight apartment buildings with Mr. Lurie.
 
Steven Cohen and Mr. Lurie eventually fell out. In a subsequent lawsuit, Mr. Lurie testified that Mr. Cohen told him the money had come from an SAC Trading account.
 
 
SOURCE: http://www.nytimes.com/2009/12/17/business/17hedge.html?_r=1&ref=business