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Steven Cohen’s Ex-Wife Gets Outside Financing for Lawsuit

Steven A. Cohen may have fended off the government for the most part, but his former wife is another story. Patricia Cohen continues to pursue Mr. Cohen, claiming that the billionaire investor cheated her out of money during their divorce some two decades ago and potentially owes her millions of dollars.

Helping to fuel the long-running legal battle is Asta Funding, a financial backer of a Beverly Hills, Calif., firm that has provided litigation financing to Ms. Cohen, according to court documents and people briefed on the matter. Asta and the firm that is financing Ms. Cohen's lawsuit — Balance Point Divorce Funding — have an agreement to share in the proceeds of legal recoveries by clients.

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All of this would appear to give investors in Asta, a publicly traded company based in Englewood Cliffs, N.J., a reason to cheer on Ms. Cohen, whose lawyers are scheduled to take a deposition from Mr. Cohen on Dec. 10.

Steven Cohen
Ronda Churchill | Bloomberg | Getty Images
Steven Cohen

Balance Point, founded in 2009 by Stacey Napp after her own acrimonious divorce, signed a deal with Ms. Cohen in the summer of 2013 to provide Ms. Cohen with about $1.2 million to continue her litigation, said people briefed on the matter but not authorized to speak about a private transaction.

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While the specific terms of Balance Point's arrangement with Ms. Cohen could not be determined, court filings in an unrelated lawsuit reveal it is common for Balance Point to get up to 25 percent of any legal recovery by a client in return for the financing provided.

Balance Point is part of a niche business that provides financing in drawn-out matrimonial cases to litigants with wealthy spouses. Only a handful of companies provide such financing in the United States.

One of Balance Point's main competitors is BBL Churchill, a New York firm that offers high-interest loans to a divorcing spouse in need of cash to pay legal bills. The firm, unlike Balance Point, does not seek to collect a portion of any divorce settlement and instead looks to collect on the loan at the end of the litigation. This summer, BBL Churchill secured financial backing from a large private equity firm, said a person briefed on the matter who spoke on the condition of anonymity.

The cash infusion from Balance Point is helping Ms. Cohen pursue a legal battle she began years after the couple divorced in 1990 — back when Mr. Cohen was hardly the household name he is now on Wall Street. Ms. Cohen contends that she filed the lawsuit in 2009 soon after she discovered that her former husband had hid proceeds from a real estate deal during their divorce and, in the process, cheated her out of money that was hers.

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Ms. Cohen claims she is entitled to at least half of the $5.5 million that Mr. Cohen obtained in that deal plus interest earned over the last 25 years. She also contends that some of the money Mr. Cohen hid from her was used to help him start his hedge fund, SAC Capital Advisors, in 1992.

SAC, before it pleaded guilty to insider trading charges and paid $1.8 billion in penalties to federal authorities, was one of the best-performing hedge funds for years. Mr. Cohen has since converted the hedge fund in Stamford, Conn., into a family office called Point72 Asset Management that trades about $10 billion of mostly his own money.

Ms. Cohen's lawsuit has the potential, then, to be a lucrative payout for Balance Point and Asta if it is successful. But given that Mr. Cohen has shown no inclination to reach a settlement with his former wife, there is the possibility that Ms. Cohen may not have been able to pursue the litigation if not for the money from Balance Point.

"Patricia, like others similarly situated, could never mount the necessary fight against a very wealthy adversary and represented by one of the top law firms without help," said Gerald Lefcourt, a lawyer for Ms. Cohen.

Jonathan Gasthalter, a spokesman for Mr. Cohen, declined to comment on the litigation.

Mr. Cohen, 58, one of Wall Street's most successful stock traders and a well-known art collector, is represented by lawyers from Willkie Farr & Gallagher, a New York law firm with more than 600 lawyers in six countries. By contrast, Mr. Lefcourt, a noted white-collar defense lawyer, runs a four-lawyer firm in New York. He has represented the Black Panthers, Abbie Hoffman and Harry Helmsley, to name just a few.

Since first filing her lawsuit in Manhattan federal court in 2009, Ms. Cohen has gone through a succession of lawyers. Lawyers from at least eight other firms have previously represented her in some fashion.

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Seth Berman, the general counsel for Asta, declined to discuss the firm's financing arrangement with Balance Point or the litigation involving the Cohens. Asta's regulatory filings reveal that the company formed a joint venture in 2012 with Balance Point called BP Case Management and committed to provide up to $15 million to the venture along with providing Balance Point with a $1 million line of credit.

Ms. Cohen's lawsuit has had its ups and downs. In March 2011, a federal court judge dismissed the lawsuit. Two years later, a federal appeals court revived it and said the judge had erred by tossing it out.

Earlier this month, a different federal judge now overseeing the case ruled that Ms. Cohen's lawyers could ask Mr. Cohen about any insider trading that occurred at his former hedge fund during the coming deposition. The decision by Judge Loretta Preska, of the Federal District Court in Manhattan, could create some discomfort for Mr. Cohen, who still faces a civil claim brought by the Securities and Exchange Commission of administrative failure to supervise.

But Ms. Cohen may be facing her own awkward situation in the litigation as well. Lawyers for Mr. Cohen have asked Judge Preska to permit them to review "more than 400 communications" between Ms. Cohen and Ms. Napp that took place from May 2010 to April 2014, according to a court filing. Mr. Cohen's lawyers contend that Ms. Napp, a nonpracticing lawyer, took an active role in "directing" the lawyers Ms. Cohen hired to represent her.

Mr. Lefcourt has argued the communications between Ms. Napp and Ms. Cohen are protected by privilege and should be kept confidential because Ms. Napp was working as an agent for his client.

Commenting on his dealings with Ms. Napp and her firm, Mr. Lefcourt said: "I am totally independent. They don't tell me what to do."

Ms. Napp did not return several telephone calls to her Beverly Hills office. In 2010, shortly after she started her business, she said that she tended to prefer clients who were open to settling as opposed to winning a lawsuit at all cost.