The DOJ and SEC alleged that Kamensky abused his fiduciary position as a co-chair of the Neiman Marcus unsecured creditors committee.
The SEC announced scienter-based fraud charges against hedge fund manager Daniel Kamensky related to his effort to quash a rival bid for shares in a valuable asset that is part of the ongoing bankruptcy proceedings regarding upscale retailer Neiman Marcus Group Ltd. LLC. Federal prosecutors in New York also announced a complaint charging Kamensky with securities fraud, wire fraud, extortion, and obstruction of justice based on many of the same facts alleged by the SEC. Neiman Marcus announced on May 7, 2020 that it had commenced a voluntary Chapter 11 bankruptcy to aid implementation of a Restructuring Support Agreement with a majority of its creditors that would allow for continued operations during the COVID-19 pandemic, which a representative of the company said had resulted in "unprecedented disruption" (SEC v. Kamensky, September 3, 2020; U.S. v. Kamensky, September 2, 2020).
"I’m going to jail." The SEC’s complaint alleges that Kamensky, a bankruptcy attorney and the founder, managing partner, and portfolio manager of Marble Ridge Capital LP, abused his position as co-chair of the Official Committee of Unsecured Creditors (UCC) in the Neiman Marcus bankruptcy. The conduct described in the SEC’s complaint had its origins in a pre-bankruptcy dispute over a valuable asset Kamensky and Marble Ridge had alleged Neiman Marcus fraudulently conveyed to keep the asset from creditors. That dispute was eventually resolved for all Neiman Marcus creditors except Marble Ridge. Marble Ridge was a registered investment adviser that specialized in distressed company investments.
Flash-forward to Neiman Marcus’s 2020 bankruptcy filing. Over time, Marble Ridge held two series of Neiman Marcus bonds constituting $65 million of Neiman Marcus’s unsecured debt. Marble Ridge also held a $9 million interest in an unsecured loan to Neiman Marcus. At the time of the bankruptcy filing, Marble Ridge held about half of Neiman Marcus’ unsecured debt.
The SEC’s complaint explained that as a co-chair of the Neiman Marcus unsecured creditors committee, Kamensky had a fiduciary duty to maximize value for all unsecured creditors of Neiman Marcus. Kamensky’s alleged unlawful conduct, however, would come to light as Marble Ridge and Jefferies Financial Group, Inc. sought to make rival bids for shares in a valuable Neiman Marcus asset. At the time, Jefferies was Marble Ridge’s ninth largest trading partner, a relationship Kamensky allegedly said would be jeopardized if Jefferies persisted in bidding on Neiman Marcus assets despite Kamensky’s protestations.
As the Neiman Marcus bankruptcy evolved, an opportunity for the previously disputed Neiman Marcus asset to issue 140 million Series B shares arose and Kamensky’s Marble Ridge planned to "backstop" a sizeable portion of those shares. Jefferies planned to place a higher bid for the shares, which the SEC asserted drove Kamensky to threaten Jefferies in an effort to cause Jefferies to withdraw its bid, which Jeffries did. The SEC asserted that Kamensky wanted to buy shares of the asset at an artificially low price as compared to a possible Jefferies bid.
At one point, the SEC said Kamensky allegedly tried to enlist a Jeffries employee in a cover-up of Kamensky’s conduct. The SEC’s complaint quotes Kamensky as saying: "... [I]f you’re going to continue to tell them what you just told me, I’m going to jail, okay? Because they’re going to say that I abused my position as a fiduciary, which I probably did, right? Maybe I should go to jail. But I’m asking you not to put me in jail." Kamensky was unaware that the Jefferies employee had recorded the call.
The complaint alleges that the Jeffries employee then refused to lie on behalf of Kamensky and Kamensky pleaded with the Jefferies employee to tell others that Kamensky actually told him the dispute was a "misunderstanding" and that Jefferies should bid for the Neiman Marcus shares.
Ultimately, Jefferies told the UCC about Kamensky’s allegedly threatening conduct and Marble Ridge, still led by Kamensky, resigned from the UCC. Jeferries then renewed its bid for the Series B shares, although those shares have not been sold and may end up in a liquidating trust. Meanwhile, Neiman Marcus has sued Marble Ridge and Marble Ridge has begun to wind-down its funds.
SEC, DOJ charges. The SEC’s complaint alleges a single claim that Kamensky violated the scienter-based antifraud provision contained in Securities Act Section 17(a)(1) (prohibiting a person from "employ[ing] any device, scheme, or artifice to defraud"). Specifically, the SEC claims that Kamensky’s conduct amounted to a fraudulent device in that he gave the surface impression of propriety by recusing himself from certain dealings in the Neiman Marcus bankruptcy while he secretly threatened Jefferies not to bid on the Series B shares. The SEC also recited the alleged cover-up and how Kamensky allegedly misled Marble Ridge’s bankruptcy counsel with respect to the firm’s response to an inquiry by the UCC; in both instances, Kamensky allegedly tried to explain the threats as having been a "misunderstanding."
Daniel Michael, Chief of the SEC's Division of Enforcement's Complex Financial Instruments Unit, explained the SEC’s charges: "Misrepresentations and deceptive conduct have no place in securities offerings. As alleged, Kamensky abused his position as a fiduciary to the Neiman Marcus unsecured creditors by secretly working against them."
The federal criminal complaint charged Kamensky with one count each of securities fraud, wire fraud, extortion and bribery in connection with bankruptcy, and obstruction of justice. The criminal complaint has even more detailed transcripts of alleged—conversations Kamensky had with key players in the Neiman Marcus bankruptcy.
"As alleged, Daniel Kamensky disregarded his fiduciary responsibility to unsecured creditors of Neiman Marcus—and broke the law—when he attempted to coerce a competitor to withdraw a higher bid for assets of the bankruptcy estate," said Acting Manhattan U.S. Attorney Audrey Strauss. "As further alleged, acknowledging the illegality of his actions, Kamensky then attempted to obstruct an investigation by trying to persuade the competitor to change his account of the coercion, telling the competitor that otherwise ‘this is going to the U.S. Attorney’s Office.’ As today’s charges show, Kamensky was right about that."
The case is No. 20-cv-07193.
Attorneys: Marc P. Berger for the SEC.
Companies: Marble Ridge Capital LP; Neiman Marcus Group Ltd. LLC; Jefferies Financial Group, Inc.
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