The founder of a large New York hedge fund was charged yesterday with fraud related to the Neiman Marcus bankruptcy, according to the US Department of Justice.
Daniel Kamensky, the founder of Marble Ridge Capital LP, is alleged to have pressured a rival to not bid for assets related to the bankruptcy case. He also allegedly used his position as a fiduciary to Neiman Marcus unsecured creditors by working secretly against them.
Marble Ridge Capital specialized in distressed investing and is selling off its assets. Kamensky also has been charged with wire fraud, securities fraud, extortion, bribery, and obstruction of justice.
Scheme Started in July 2020
Federal prosecutors allege that the scheme started on July 31. At that time, Kamensky found out that an investment bank bid at 30 cents per share for securities related to the Neiman bankruptcy. This was above the 20 cents he intended to pay. He used his position aggressively to pressure the bank to not make a bid. The bank agreed at first but changed its position when the scheme went public.
Kamensky, who lives in Roslyn, New York, allegedly threatened to use his position as co-chair of Neiman Marcus’s official committee of unsecured creditors to stop the higher bid. He also threatened to stop doing business with the bank until it backed down.
Federal prosecutors said the bank took back its bid, and Kamensky tried to hide his illegal activity. He asked a worker there in a recorded phone call to tell law enforcement and the committee that he suggested the bank bid if it were serious.
The recorded phone call showed that Kamensky told the employee that Kamensky could go to jail if the scheme were uncovered. The employee said that he did not want to have any part of the situation.
In an interview under oath later, Kamensky conceded that his conversations with that employee were a ‘terrible mistake’ and that he made serious errors in judgment.
If Kamensky is convicted, he could get up to 20 years in federal prison.
FBI Says Kamensky Violated His Fiduciary Duty
The FBI stated yesterday that Kamensky intentionally violated his fiduciary duty as a member of the Official Committee of Unsecured Creditors in the bankruptcy of Neiman Marcus. He prevented the sale of investment securities to an investment bank so he could buy the same securities at a lower price for Marble Ridge Capital.
FBI Assistant Director-In-Charge William Sweeney noted that Kamensky told an employee that he ‘maybe should go to jail for what he did.’ Sweeney said the FBI has taken out the ‘maybe’ and will hold him accountable for his actions.
The SEC has also filed related civil charges against Kamensky. The SEC stated this week that deceptive conduct and misrepresentations have no place in any securities offerings. The SEC agreed that Kamensky abused his role as a fiduciary to Neiman Marcus unsecured creditors by working against them in private.
Neiman Marcus also has filed a lawsuit against Marble Ridge Capital, suing for at least $60 million in damages and to block the winding down of the company.
Kamensky Waged Long Battle With Neiman’s Private Equity Owners
Kamensky started his financial career as a bankruptcy attorney. He waged a years-long battle to hold private equity owners at Neiman’s accountable for what he said was a fraudulent effort to move Neiman’s subsidiary MyTheresaa out of reach of creditors.
The owners of MyTheresa, Ares and CPPIB, settled the allegations. They gave preferred stock to unsecured creditors. One of them was Marble Ridge. Other recipients were Chanel, Este Lauder and other large trade vendors. Kamensky wanted his company to buy its stock at a discount.
He told the investment bank managing the stock to not send in a bid because they were offering double what he was.
The bank agreed at first, but the scheme unraveled when bank executives told the creditors committee what had happened. This was when Kamensky tried to cover the fraud.
Marble Ridge Liquidating Its $1.2 Billion in Assets
As of Dec. 31, 2020, Marble Ridge had $1.2 billion in assets. The company announced the liquidation on Aug. 20 after Kamensky’s actions caught the attention of federal law enforcement.
Many department stores, including Neiman Marcus, have been hammered by COVID-19. Several large retailers have gone into bankruptcy in 2020. Neiman Marcus’s bankruptcy has been a major loss for Related Companies and Oxford Properties Group.
These organizations covered the costs of an expensive buildout for Neiman Marcus to anchor the Hudson Yards Mall in New York City. Now the developer is being forced to market the 190,000-square-foot property as office space.
- Hedge Fund Founder Charged With Fraud and Extortion. Accessed at https://www.reuters.com/article/us-usa-crime-kamensky/new-york-hedge-fund-founder-charged-with-fraud-extortion-tied-to-neiman-marcus-bankruptcy-idUSKBN25U2RL
- Hedge Fund Manager Arrested for Fraud. Accessed at https://therealdeal.com/2020/09/03/hedge-fund-manager-arrested-for-fraud-in-neiman-marcus-bankruptcy/