Twenty-Year Old Divorce Case Reopened: It’s Not Over Til It’s Over

La Spiga 2011-03-22In 1990 New York securities trader Steven Cohen was just beginning to see the fruits of his Wall Street career ripen. The only bad news was that his marriage didn’t survive and he needed to negotiate a financial settlement with his wife, Patricia Cohen.

At the time he told his wife that he had lost $9 million dollars in a co-op apartment investment he made in 1986, leaving his net worth at a mere $8.1 million. She didn’t believe him, but had no grounds to refute his assertion.

Mr. Cohen remarried two years later and built his business, SAC Capital, growing it from $25 million in assets to several billion dollars. Life was very good for him, until 2008.

It was then Ms. Cohen discovered a court file that revealed her ex-husband had settled the investment loss case with one of his co-op partners and recovered $5.5 million. She filed a lawsuit against him in 2009 alleging fraud.

Unfortunately, the first judge who heard the case threw it out saying the claim was too old to pursue and was unsubstantiated.

The Manhattan Appeals Court saw it differently. This month they reinstated Ms. Cohen’s lawsuit holding that the lack of timeliness in its filing was because she only discovered evidence of fraud eighteen years after the divorce.

My advice to Mr. Cohen: “Settle this case now, after all, you are a multi-billionaire and will likely not even notice a shortage of a couple of million.”

Besides, Cohen’s $15-billion dollar hedge-fund is the target of an insider trading investigation that has already seen the arrest of five individuals related to his Connecticut-based business. As well, two companies affiliated with SAC Capital have recently settled insider trading allegations with the US Securities and Exchange Commission for $614 million dollars, the largest insider trading settlement in the United States.

While there have been no charges laid against Mr. Cohen, the SEC is breathing down his neck. He really doesn’t need the aggravation of his ex-wife’s court action and the publicity that accompanies it.

Family law is different however. Cases that should be settled often are not because of petty vindictiveness and the need to win, and of course, Cohen can afford to bury his ex in legal fees.

Lawdiva aka Georgialee Lang

Guest Post: Longest Prison Term for US Insider Trading Case

The conviction of former hedge fund manager Raj Rajaratnam has once more brought attention to the complex and secretive world of private investment banking. “Insider trading” is again a buzzword from online news to PhD programs. A federal jury had previously found Rajaratnam guilty of 14 counts of securities fraud and conspiracy perpetrated over a seven-year period at the Galleon Group hedge fund. His trial lasted approximately two months, although Rajaratnam had been arrested back in October 2009.

Mr. Rajaratnam is a Tamil-American who obtained his master’s degree in business administration from the prestigious Wharton School in the early 1980s. While working as a research analyst at Needham & Company he started a technology hedge fund that would later become Galleon. Rajaratnam’s Diversified Fund was reported to have a net annualized return of 22.3% in 2009, skyrocketing him among the elite of US money managers.

According to prosecutors from the US Attorney’s Office for the Southern District of New York, Rajaratnam’s sentence is the longest ever imposed for insider trading. Despite the unusually long sentence he faced, Rajaratnam chose not to say anything on his own behalf. This silence was in line with Mr. Rajaratnam’s demeanor in court and in public since he was arrested two years ago.

During the trial, presiding Judge Richard Holwell once referred to insider trading as “a virus that needs to be eradicated.” On the other hand Rajaratnam’s defense team insisted their client’s crime was victimless and that no one lost money as a result. For all the news media attention insider trading gets, it remains a white-collar crime not many people fully understand.

In the United States, insider trading refers to the practice of buying or selling publicly traded securities based on material information that isn’t publicly available. The criminal release and acquisition of insider information often occurs in secrecy and violation of fiduciary trust. However, insiders need not be corporate directors or individuals to whom fiduciary confidence is entrusted. Any person who knowingly comes across material, non-public information and trades securities based upon that insider information is in violation of federal law and regulations set forth by the Securities and Exchange Commission.

The case brought against Rajaratnam by the Securities Exchange Commission and the US Attorney was supported by strong evidence: the FBI wiretapped the hedge fund manager’s cell phone for most of 2008. The investigation was expansive in its magnitude, stretching from Galleon’s oak-paneled headquarters in New York City to the corporate parks of Silicon Valley in California. More than 20 people have been arrested as a result. Most have pled guilty and received sentences far lighter than Rajaratnam’s 11-year prison term.

Prosecutors estimated Rajaratnam pocketed up to $75 million in profits from insider trading of stock in ATI Technologies, Clearwire Corporation, Google, Intel, and others. One of Rajaratnam’s most notorious trades involved a former Goldman Sachs director. In 2008, Rajat Gupta passed significant information to Rajaratnam concerning a $5 billion investment from Warren Buffett in Goldman Sachs. That investment by Berkshire Hathaway was instrumental in helping Goldman Sachs avoid the fate of Lehman Brothers during the collapse of the credit markets in 2008.

Mr. Rajaratnam has been given 45 days to get his affairs in order prior to reporting to prison. His defense team plans to appeal the sentence. Though he was expected to receive more than 20 years imprisonment, Judge Holwell took into consideration Mr. Rajaratnam’s delicate state of health: he suffers from advanced diabetes and faces possible kidney failure.

In addition to jail time, Judge Holwell imposed a $10 million fine and a forfeiture of $53.8 million. Even after the Galleon fund folded in 2009, the 54-year-old former fund manager kept investors in the black. Galleon investors were returned their funds and profits in an orderly manner upon Rajaratnam’s arrest.

Guest author ELAINE HIRSCH is a jack-of-all-interests, from education and history to medicine and videogames. This makes it difficult to choose just one life path, so she is currently working as a writer for various education-related sites and writing about all these things instead.

SEC Busts Insider Trading With Help of Ex-Wife

Karen and David Zilkha’s marriage ended in messy divorce proceedings that included spousal abuse, restraining orders, an ongoing battle over their nine-year old twins and a SEC investigation.

Their marriage began in 1998 in Washington State where Mr. Zilkha worked for Microsoft. By 2001 the family had moved to Connecticut and a new job for Mr. Zhilka as a trader with hedge fund Pequot Capital Management. By 2003 their marriage was over and the divorce wars began. Eventually the financial aspects of their divorce were completed with Ms. Zilkha receiving $750,000.00 in assets including the family home.

The conflict started up again in 2008 when child support was to be reviewed. Mr. Zilkha filed updated financial information which included disclosure of a sum of $2.1 million. His ex-wife and her lawyer were mystified about the emergence of this asset, but then Ms. Zilkha remembered that before the collapse of the marriage, her husband had told her that he was negotiating a payment from Pequot.

Ms. Zilkha’s attorney knew that her client had kept the family computer and wondered if there was information about this money in old emails. What she found turned the case from a high conflict divorce case to a Securities Exchange Commission investigation of insider trading.

Emails retrieved from the computer hard drive provided proof that Mr. Zilkha had obtained confidential information from a former colleague at Microsoft that led to Pequot selling Microsoft shares with a payout to Pequot of $14 million.

Investigators at the SEC had long suspected that Mr. Zilkha had been involved in insider trading but with no “smoking gun” the investigation had languished.

CEO of Pequot, Arthur Samberg and Pequot paid fines and penalties to settle the case amounting to $28 million. Mr. Samberg, once the world’s largest hedge fund manager, sold the assets of Pequot and shut it down. Mr. Zilkha faces administrative charges with respect to his role as “tipper”.

Did Ms. Zilkha eventually get her child support? Don’t know, but under new legislation she received a reward of $1 million from the SEC for providing the evidence that was needed to convict.

Lawdiva aka Georgialee Lang