When the news broke yesterday that Steve Cohen, SAC Capital’s billionaire manager, is being sued for $300 million by his ex-wife, one immediately wonders how she could sue on fraud claims nearly 20 years old.
The answer is RICO. Not-so-conincidentally, RICO is also the answer to why her lawsuit faces an uphill climb.
Law professor Peter Henning address both questions for DealBook’s White Collar Watch. The full article is here, but here’s a breakdown:
How can she sue now?
- Instead of suing in family court, Patricia Cohen is suing in federal court under the Racketeer Influenced and Corrupt organisations Act — RICO;
- An invidual can bring a RICO claim, and, it’s enticing because it allows triple damages and attorney’s fees;
- RICO claims can be brought decades later, as long as the suit is brought within four years of discovering the fraud
What issues will she face?
- RICO is not without a statute of limitations — the SOL is four years after the violation should have been discovered. Mrs. Cohen said she learned about the relevant criminal fraudulent activities from “60 Minutes” in 2006; a court will wonder how she did not know about them earlier, or at least be curious enough to look into it. They were, of course, married.
- RICO has very strict requirments and courts also look for multiple victims; further judges look for a certain level of complexity in racketeering activity — lying to your spouse about your income will not do the trick.
- RICO victims have to be injured in their “business or property” — even with a $300 million lawsuit, the losses claim that she should have received more in her divorce settlement could be deemed only personal (This will shake out during discovery, if it gets that far.)
- The reason Mrs. Cohen put the alleged insider trading front and centre is because RICO claims cannot exist independent of criminal activity. But she’ll need to show how the insider trading allegations relate to her claim she was defrauded in the divorce settlement. “Even if Mr. Cohen did trade on material nonpublic information, that conduct does not appear to have harmed her in her business or property. While the alleged actions could be evidence that he is willing to break the law, they appear superfluous to any alleged pattern of racketeering activity,” Prof. Henning said.
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