Federal Judge Hilariously Exasperated Over Hedge Fund Giant Steve Cohen's Never-Ending Divorce
Here's a fun fact: if you're wealthy enough -- we mean really, really rich -- your divorce proceedings can literally last forever. That's the lesson we can all take away from the unhappy tale of hedge fund behemoth Steve Cohen, who runs the enormously lucrative, highly secretive S.A.C. Capital Advisors, and his ex-wife of 26 years, Patricia.
The couple married in 1979 and separated in 1988, but the squabbling over money continues to this very day, buttressed by Patricia's certainty that her ex-husband and his brother, Donald, hid lots of cash from her. In 2009, Patricia sued the Cohen brothers, alleging that they were engaged in nothing less than racketeering, insider trading, money laundering, misuse of the U.S. Postal System, and various other kinds of real bad fraud, and that they owed her roughly $300 million (she later reduced that claim to $8.25 million).
Yesterday, U.S. District Court Judge William Pauley threw out Patricia's racketeering claims, but ruled that Steve must still face her allegations of fraud and "breach of fiduciary duty." In the process, he threw out some serious zingers on the nature of love, marriage, and the dangers of trying to "spice up" one's divorce with RICO claims.
A lovely and very depressing New York magazine profile from 2010 outlines how the erstwhile couple met (the bar of a restaurant on the Upper East Side, on a rainy evening), how they lived (a 5,500-square-foot apartment on East End Avenue, among other homes; spending $50,000 on Patricia's clothing in one month; lots of interior decorating), and what tore them apart (she felt he didn't spend enough time with his family; he felt that she "didn't want him to be happy.") The divorce began in 1988 but wasn't finalized in 1990; for some of that time, the Cohens still lived in the same house. Steve had moved out, but moved right back in, reasoning, "I paid all the expenses."
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At the time of the divorce, the couple's total assets were listed at $17 million. As part of the settlement, Patricia received nearly $5 million, according to later court filings. In 1991, according to Judge Pauley, she sued for increased child support, maintenance, and "other relief on the grounds of economic duress, fraud, and unconscionability." She alleged that she wasn't able to care for their two children in the manner that they were accustomed to, and that Steve had hidden money from her by filing a separate tax return in 1989. In January 1992 -- the same year Steve remarried, to Alexandra Garcia, whom he met through a dating service -- Patricia withdrew the request for more maintenance, but the two amended their separation agreement to increase the child support. Steve and Garcia went on to have five children together, bringing Steve's total to seven.
In 1992, Steve also founded S.A.C. Capital Advisors, based in Greenwich, Connecticut, where he lives, and which reportedly has been under investigation by the feds since 2008 for insider trading. Six former S.A.C. employees have pleaded guilty thus far to insider trading, a seventh was recently found guilty of conspiracy and securities fraud, and an eighth is on trial right this minute in Manhattan federal court. There's no indication that Steve himself will be tried with insider trading; if the feds had such a big fish on the hook, they might have reeled it in by now. According to Forbes, Cohen is now worth an estimated $9.4 billion.
In 2009, Patricia filed a new complaint against Steve, claiming that in the late '80s, he and Brett K. Lurie, his former lawyer and real estate business partner, hid millions of dollars from both her and the feds. Lurie was convicted of real estate securities fraud in 1994 and captured in Costa Rica in 2005. He served three years in state prison.
Steve had claimed during their divorce that an investment he made with Lurie was "worthless," a claim that Patricia did not believe. She thought that he had hidden the real value of that investment from her, and that she was entitled to a roughly $2.75 million piece of it. Thus, the racketeering allegations under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), as well as your more garden-variety fraud.
Judge Pauley backed up Patricia on the fraud claim, pointing out that although she signed a waiver during the divorce acknowledging that she hadn't received "full financial disclosure" from her ex, that still doesn't negate her claim that she reasonably believed, based on Steve's statements, that the Lurie investment was gone, and that she was thus not entitled to a piece of it.
But Patricia also accused Steve and his brother, Donald, of racketeering, securities fraud, and mail fraud (because they allegedly used the mail system to complete these "schemes"). On that point, Judge Pauley was neither sympathetic nor amused, noting that even though S.A.C. is being investigated for insider trading, his ex-wife can't pile on in there: "Patricia Cohen cannot take on the mantle of a private attorney general just because her ex-husband is a public figure and S.A.C. is in prosecutors' cross-hairs."
In conclusion, Pauley took a little time to ruminate on the nature of love, writing, "This is a case to restore faith in the old-fashioned idea that divorce is something that lasts forever. Indeed, factoring in Patricia's 1991 motion, the Cohen's legal battles have covered a span over twice the length of their marriage. But though treble damages are a tempting way to spice things up, civil RICO and marriage do not go together like a horse and carriage." That's a weird metaph-- oh. We see what he did there.
Pauley dismissed the racketeering and conspiracy claims against both Steve and Donald. They'll still have to answer Patricia's claims of breach of fiduciary duty, in Steve's case, abetting breach of fiduciary duty, in Donald's case, and common law fraud for the both of them, a process which, given everybody's level of funding, can be reasonably expected to take approximately 1 million years.
The judge's full ruling is on the following page.
Send your story tips to the author, Anna Merlan.
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