The ex-wife of SAC Capital Advisors LP founder Steven A. Cohen won reinstatement of most of a lawsuit in which she seeks $8.25 million in damages based on claims the hedge fund is “the product of an ongoing racketeering scheme” that engaged in insider trading.

Patricia Cohen’s July 2010 amended complaint was dismissed in 2011 for being filed after legal deadlines. A federal appeals court in Manhattan today ruled her lawsuit was filed in a timely manner, and that she validly stated claims her husband violated the Racketeer Influenced and Corrupt Organizations Act, as well as common law fraud and breach of fiduciary duty. A fourth claim was found to have been properly dismissed.

Her case was returned to the lower court to determine whether other legal grounds might warrant dismissal or whether evidence gathering can begin in preparation for a trial. The court didn’t rule on the merits of her claims.

“The question before us is limited to whether the allegations of the complaint are sufficient to go forward to be tested at trial,” the court said in its ruling.

Cohen, whose $15 billion hedge fund is at the center of a multiyear federal insider trading investigation, allegedly hid $5.5 million from his ex-wife during their 1990 divorce, her lawyer argued at an appeals court hearing in February 2012. Cohen’s wife seeks half that amount as part of her divorce settlement and asks that the sum be tripled as the RICO statute permits.

Latest Development

The ruling is the latest insider-trading related development in Steven Cohen’s life. Last week, SAC fund manager Michael Steinberg, a 16-year veteran of the firm, became the latest of nine current or former SAC employees to be tied to the federal investigation of that crime. Steinberg, who turns 41 this week, was indicted by a federal grand jury March 28 on five counts of conspiracy and securities fraud.

Last month, the U.S. Securities and Exchange Commission agreed to a $616 million settlement with SAC over alleged illegal trades. While a $14 million portion of that was approved by a federal judge, the larger $602 million deal was challenged by another judge who has yet to rule on it.

Jonathan Gasthalter, a spokesman for Cohen, said in a statement that “these decades old allegations by Mr. Cohen’s former spouse were patently false and entirely without merit.”

Wife’s Argument

Howard Foster, a Chicago-based lawyer for Patricia Cohen, said Steven Cohen didn’t include the money, which Foster said Steven Cohen received as part of a settlement of a real-estate dispute, on his 1989 financial statement.

“The financial statement was wrong and deceptive,” Foster today told the panel of the U.S. Court of Appeals. Martin Klotz, a lawyer for Steven Cohen, denied his client hid money.

Klotz said today that Patricia Cohen will now seek to air her claims in court and pursue the $8.25 million in damages.

In March 2011, U.S. District Richard Holwell in New York dismissed Patricia Cohen’s suit, ruling she took too long to bring the case, which was first filed in 2009. The judge said Cohen made similar claims in a 1991 lawsuit in which she accused her ex-husband of hiding assets and misrepresenting the value of his investments.

Foster said at last year’s oral arguments that his client didn’t know about the alleged deception until 2008.

“I don’t accept for a minute that he had $5.5 million,” Klotz, Cohen’s lawyer, told the three-judge panel.

Dismissed Complaint

Klotz said Holwell dismissed the complaint in part because it didn’t meet a plausibility test and there were other possible explanations such as Cohen’s not having the money at that point.

“Simply saying he got $5.5 million in 1986 and January 1987 says nothing,” Klotz said.

Foster said that as part of the settlement, Cohen received $5.5 million in cash and a $3 million mortgage. Klotz disagreed, saying Cohen got mortgages that eventually went into bankruptcy.

“He is a hugely successful trader,” Foster told the judges. “He didn’t just lose that $5.5 million. He kept it off the statement.”

Cohen, 56, started SAC in 1992 with about $25 million and the hedge fund firm now has about $15 billion under management.

“I feel my attorney did a good job,” Patricia Cohen said after the oral argument last year. “I think they really understood the facts that Mr. Foster laid out.”

“I am cautiously optimistic there’s going to be a reversal,” her lawyer said.

Patricia Cohen said in her lawsuit that SAC Capital was “the product of an ongoing racketeering scheme” that has engaged in insider trading, bank fraud, money laundering and other misconduct.

Wanted Half

She also had claimed she was entitled to at least half of his business, saying it was developed in part with $1 million that she earned from a real estate business.

Steven Cohen said the couple had $17 million in marital assets in the divorce, and Patricia Cohen accepted a $3.5 million settlement, $2.5 million of which was an apartment, according to the complaint.

The case is Cohen v. Cohen, 11-1390, U.S. Court of Appeals for the Second Circuit (Manhattan), and 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).