Hell Hath No Fury Like a RICO Action: Racketeering Charges Filed in Hedge Fund Divorce

How angry an ex would you have to be to file racketeering charges against your spouse?

That’s a question Elizabeth Bingham-Perry could answer. The Scarsdale resident filed a civil RICO action against her husband Jeffrey Perry in the U.S. Southern District’s Westchester courthouse last week.

Mr. Perry, it so happens, is an executive at Third Point LLC, the hedge fund founded by Dan Loeb.

In the complaint, Ms. Bingham-Perry alleges that Mr. Perry lied on net worth statements submitted by mail in the divorce proceedings, concealing assets in excess of $1 million in offshore and other acounts. That’s just the start. Mr. Perry’s entire career, his wife alleges, “has been marked by repeated criminal activity in his quest to amass his fortune,” a claim she rests on Mr. Perry’s alleged participation in a scheme to drive down the share price of a Canadian company called Fairfax Financial.

Which is a pretty nasty thing to say about your husband of 23 years, and a crude but potentially useful cudgel for hammering out a settlement.

A little background: RICO is the Racketeer Influenced Corrupt Organizations Act, passed by Congress in 1970 to allow the government to prosecute mafia godfathers for crimes committed by their organizations, but written broadly enough to apply to any person who uses an enterprise to engage in a continuous pattern of criminal activity.

“You see it a lot in divorce cases,” said Jeffrey Grell, a lawyer at Grell & Feist who teaches a course on civil RICO at the University of Minnesota School of Law and has represented plaintiffs and defendants in civil racketeering charges. “Particularly when there have been efforts by one spouse to fraudulently conceal assets from the other.”

Indeed, Ms. Bingham-Perry isn’t the first hedge fund wife to play this hand.

In 2009, Patricia Cohen brought a civil RICO suit against SAC Capital founder and longtime ex Steven A. Cohen. A judge dismissed the case in March 2011, though it’s currently under appeal.

Coincidentally, attorney Howard W. Foster, who’s listed on Ms. Bingham-Perry’s complaint as a pro hac vice counsel, also represented Ms. Cohen.

The first half of Ms. Bingham-Perry’s complaint is fairly straightforward. She says that Mr. Perry used “U.S. mails and wires to perpetuate frauds and enrich himself in the divorce actions,” wiring assets into secret accounts after hiring a divorce lawyer in 2005, then intentionally omitting those assets in documents mailed to Ms. Bingham-Perry and the New York State Supreme Court last year.

Whether the plaintiff’s counsel—Clifford James, who once sued the Andy Warhol Foundation on behalf of the Velvet Underground—can convince a judge that the Mr. Perry’s alleged actions support a civil RICO case is no sure thing, but there are clear incentives to filing claims like this one: Plaintiffs are entitled to three times the damages, plus lawyer’s fees, in civil RICO suits.

“I sometimes like to challenge my students with the question, ‘Is it professional malpractice not to characterize a claim as civil RICO?’” Sara Sun Beale, a law professor at Duke University, told The Observer, referring to the outsized damages available. “If nothing else, it moves the settlement needle closer to the plaintiffs.”