Steve Cohen's perpetual divorce puts insider claims center stage
Billionaire Steven A. Cohen may be done fending off government efforts to tie him to insider trading at SAC Capital Advisors LP, but his ex-wife Patricia Cohen isn't quite through with him yet.
Her lawyers won permission as part of a 25-year-old divorce battle to question him about any lies he may have told related to wrongdoing at the hedge fund. The plan, the lawyers said, is to quiz him under oath about the receding U.S. criminal probe, illustrating just how bitter the fight over a long-defunct marriage has become.
In a stack of court filings over the years, Patricia has claimed Steven cheated her out of at least $2.75 million in their 1990 divorce; he calls her allegations "legal extortion" and a "three-ring circus." She contends his business is built on fraud and deceit; he accuses her of being greedy.
"This is a case to restore faith in the old-fashioned idea that divorce is something that lasts forever," U.S. District Judge William Pauley wrote in a January ruling in the case. "The only thing that distinguishes it from countless others is the seemingly inexhaustible legal resources that each side has brought to bear."
While Cohen and his ex-wife have fought for five years over millions of dollars, his wealth has grown to dwarf those assets, almost doubling to reach $11.1 billion, according to data compiled by Bloomberg.
"It's a bit of a head-scratcher," said Anthony Sabino, a business law professor at St. John's University in New York, who has followed the case. "He's been pilloried in the press. You'd have to think he is sick and tired of that and would like to get out of the spotlight. It's baffling why he just doesn't say, 'Here's the money, why not leave us alone?'"
"No one's ever happy with their divorce," said New York City divorce lawyer Suzanne Bracker, who's not involved in the Cohen suit. "It's in both their best interests to settle this case and not to ever have it see the light of a courtroom."
There's no sign that will happen anytime soon.
"Any chance this case can be settled?" an exasperated Judge Pauley asked lawyers for both sides after a contentious hearing last year in Manhattan federal court.
"We're open to negotiation," Joshua Dratel, then Patricia Cohen's lawyer, offered.
"There is utterly no claim here, and we're not prepared to spend money on such a made-up suit," Martin Klotz, Steve Cohen's attorney, replied.
It's been a rough patch for Steven Cohen, 58, a balding, blue-eyed, stocky investment manager who is legendary for his sharp temper, grand art collection and preternatural trading success.
Capping a six-year investigation, Manhattan U.S. Attorney Preet Bharara in 2013 filed two insider-trading cases against the hedge fund, tracing the firm's corruption as far back as 1999 and calling it a "magnet for market cheaters."
In the year since, the Stamford, Connecticut-based firm pleaded guilty, paid a record $1.8 billion fine, changed its name to Point72 Asset Management LP and agreed to manage only Cohen's money.
Bharara's probe earned his office convictions of eight former SAC Capital employees for insider trading, including a few men close to Cohen, but the founder and namesake of SAC Capital was never charged with a crime, and has repeatedly denied any wrongdoing.
The U.S. Securities and Exchange Commission hasn't sued Cohen either, instead settling for an internal administrative action claiming he failed to supervise senior traders.
Fraud Suit
Patricia sued her ex-husband for fraud when the U.S. probe was just beginning. Wed in 1979, they divorced about a decade later. Steve, then barely worth eight figures, gave Patricia $3.5 million in assets after saying a $5.5 million real-estate deal that was half hers had gone bust.
Patricia claimed he lied, accusing him in her 2009 complaint of hiding millions of dollars in assets. She wants half of Steve's payout from that transaction, or $2.75 million.
The two can't even agree on when SAC Capital was started.
He says 1992, two years after their split, while she says 1986, and that the $25 million he used to seed the hedge fund, then called SAC Trading, included $900,000 of her cash, adding to her claims. That investment could be worth millions of dollars more today, Patricia Cohen said.
Parting for the two has been such sorrow, though not in the way either one would likely have hoped.
The 2009 lawsuit is as complicated as a Wall Street trading algorithm. Patricia is on her fifth lawyer and the case is on its third judge. The first one dismissed the suit in 2011, ruling it was filed too late, only to have an appeals court reinstate it. With the case entering its sixth year, both sides are still questioning witnesses and exchanging evidence.
The couple met on a rainy summer evening in 1979, when Steve, then a 22-year-old trader in Gruntal & Co.'s options arbitrage unit, approached Patricia Finke at a bar on Manhattan's Upper East Side, according to a 2010 article in New York Magazine. Patricia, four years older than Steve, hailed from the Washington Heights neighborhood at Manhattan's northern tip and was a book editor. He came from New York's Long Island and graduated from the University of Pennsylvania's Wharton School of Business. They wed six months later.
"Steve was incredibly sweet," Patricia told the magazine. Their relationship, however, soured over the years amid the stress of Steve's Wall Street job.
Patricia, a petite woman with curly red hair, said in her lawsuit that she stayed home and cared for the couple's two children. During their marriage, Steve wouldn't even allow her to have her own bank account while he earned millions of dollars as a trader, she alleged.
"Steve was so secretive and controlling that Patricia was only allowed to contact his secretary to request monthly transfers of money for their joint checking account so she could pay the family bills and buy groceries," she said in court papers.
By 1990, the marriage was over when Steve filed for divorce. Almost two decades would pass before Patricia would discover what she claims were details of the real estate transaction that were hidden from her.
Soon after she sued in December 2009, Patricia was contacted by two FBI agents who were curious about her claim, made as part of the lawsuit, that Steve used inside information in advance of General Electric Co.'s purchase of RCA Corp. in 1985, according to a person familiar with the case who asked not to be identified because the matter is private.
Lefcourt and Peter Donald, a spokesman for the FBI in New York, declined to comment.
Private Records
In court filings, Patricia shared a cache of private records, including an excerpt of a transcript of Cohen's 1986 testimony before the SEC. In it, Cohen cited his constitutional right not to incriminate himself and wouldn't answer questions about his trading in RCA.
"In addition," according to Patricia Cohen's complaint, "he refused to produce any documents to the SEC."
According to the records, Steven Cohen had a net worth of $17 million in mid-1988. The couple's 1989 separation agreement, which was also made public, outlined his payments for sleep-away camp, tutoring, visitation and clothing. He paid $20 a month per child for books, and $424 a month for each child's clothing.
Cohen attached an affidavit from the divorce case to his ex-wife's 2009 lawsuit. In it, Patricia Cohen requested increased maintenance, citing as justification that her ex- husband encouraged her to spend $50,000 a month on clothes.
Jonathan Gasthalter, a spokesman for Steven Cohen, declined to comment on the case or court documents. Cohen later remarried, to his current wife, Alexandra.
Last month, Patricia Cohen upped the ante, asking to grill Steven Cohen under oath about the government's insider-trading probe of SAC Capital and the cases that grew from it.
Her current lawyer, Gerald Lefcourt, said he can explore allegations of insider trading to show "how Steven Cohen does business" and test his credibility. U.S. District Judge Loretta Preska, to whom the case was reassigned, ruled Nov. 17 that he may do so.
Lefcourt said part of the questioning next month will focus on whether Steven played a role in the $275 million insider scheme of ex-fund manager Mathew Martoma, the largest single insider trading scheme in U.S. history.
According to evidence at his trial earlier this year, Martoma received tips on disappointing drug trials at Wyeth LLC and Elan Corp. He then had a 20-minute phone call on a Sunday afternoon with Steven Cohen, before the firm sold almost all of a $700 million position in the companies. The stocks fell when the trials were made public days later. Martoma, who is appealing his conviction, began a nine-year prison term Nov. 20.
"Selling stock into the market because you have inside information that the stock is likely to go down, and the purchaser doesn't have that information, is fraudulent conduct, and that's exactly what he's accused of in this case -- fraud," Lefcourt said in an interview.
While Patricia's lawsuit was allowed to go forward because she claimed she didn't discover the disputed real estate transaction until 2008, Steven Cohen's lawyer Klotz argued that documents recently obtained from her legal team show she was aware of the transaction as early as their 1989 divorce.
Klotz said in court papers that the questioning of his client is merely an attempt "to harass and embarrass Steven," and Patricia shouldn't be allowed to ask about criminal and regulatory investigations as well as his business's performance in the decades since the divorce.
"All of this stuff about insider trading has nothing to do with anything," Klotz told Preska at last week's hearing. Steven Cohen was previously questioned about the trades. He told the SEC in 2012 that he sold Wyeth stock after learning that Ridgeback Capital Management LLC founder Wayne Holman was doing so, according to U.S. District Judge Paul Gardephe, who presided over Martoma's case.
"This case is about a simple issue of whether or not Mr. Cohen disguised, concealed assets in connection with a divorce that is now 25 years old. Any questions they want to ask him on that subject are fair game," Klotz said. Her effort to bring in the insider trading probe "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."
Judge Preska, who denied Patricia's bid to obtain an SEC warning letter sent to SAC Capital that may have revealed more details of the regulator's probe, seemed to acknowledge that the bitter publicity battle may have overwhelmed the legal one.
"The press," she told lawyers as she concluded last week's hearing, ''will meet you outside.''