Interesting Situation at Wynn... Correct Ruling?

This was at the Wynn poker room during a 10 man satellite to the $540 tourney. Top 2 get seats. It was 3 handed and we offered to give 3rd his money back. The stacks were about equal size.

100/200

Villain in SB calls the BB

Hero in BB raises to 600. Villain Calls

Flop comes some rags and SB checks... Here is where the situation begins.

I grab a stack of my 100's and start to cut them out. As I am cutting, the villain in SB declares all in. At this point I have cut into the second pile of 4 chips which would make 800 if I had stopped there. When he said all in, I was still in process of cutting chips. I cut down to the minimum bet and pulled my hand away and folded.

Is this a legal play by me?