Racketeering and insider trading charges
In December 2009, Cohen and his brother Donald T. Cohen were sued by Steven's ex-wife Patricia Cohen for racketeering and insider trading charges. On March 30, 2011, the United States District Court in Lower Manhattan dismissed the case, but on April 3, 2013, the 2nd U.S. Circuit Court of Appeals in New York said a lower court had erred in dismissing fraud-based claims by his former spouse and revived the lawsuit. The appeals court also revived claims of racketeering and breach of fiduciary duty, while upholding the dismissal of an unjust enrichment claim.
Writing for a three-judge panel, Circuit Judge Pierre N. Leval said Patricia Cohen had made a "plausible" allegation that Steven Cohen had concealed the $5.5 million during negotiations on a separation agreement in 1989, which preceded the divorce. The revival of the lawsuit comes amid mounting pressure on Steven Cohen over an insider trading investigation that led to the arrest of Michael Steinberg, one of Cohen's closest confidantes at SAC Capital. SAC affiliates reached two civil insider trading settlements totaling nearly $616 million with the U.S. Securities and Exchange Commission. SAC neither admitted nor denied wrongdoing in either case.
SEC investigation (2012–2016)
On November 20, 2012, Cohen was implicated in an alleged insider trading scandal involving an ex-SAC manager, Mathew Martoma. The SEC brought charges against a number of other S.A.C. employees from 2010 to 2013 with various outcomes. Martoma was convicted in 2014, in what federal prosecutors billed as the most profitable insider-trading conspiracy in history. The SEC later brought a civil lawsuit against Cohen, alleging his failure to supervise Martoma and Michael Steinberg, who was a senior employee and confidant of Cohen's. Cohen settled his civil case with regulators in January 2016; the agreement with the SEC prohibited Cohen from managing outside money until 2018.
S.A.C. Capital Advisors "pleaded guilty to insider trading charges in 2013 and paid $1.8 billion in penalties" and was required to stop handling investments for outsiders. Cohen "escaped criminal indictment himself despite being the living, breathing heart of S.A.C. Capital," but Dr. Sidney Gilman, the star prosecution witness against Martoma, testified that FBI agents told him that Cohen was the investigation's ultimate target. He was featured in a January 2017 New Yorker article titled, "When the Feds Went After the Hedge-Fund Legend Steven A. Cohen".