The U.S. Securities and Exchange Commission and the U.S. Justice Department have charged Marble Ridge Capital founder Daniel Kamensky with violating federal securities for allegedly perpetrating a fraud for his role as co-chair of the unsecured creditors committee in the Neiman Marcus bankruptcy proceedings taking place in Houston.
The SEC accused Kamensky of illegally using his leadership position in the Neiman’s corporate restructuring to manipulate a bidding process to the financial benefit of his own business.
Marble Ridge is a New York-based financial advisory firm with an estimated $1 billion of assets under management. The firm, which specializes in distressed debt investment opportunities, holds about $65 million of Neiman’s unsecured debt in a series of bonds and another $9 million interest in an unsecured loan made to Neimans.
The SEC’s civil lawsuit seeks fines and a permanent injunction barring Kamensky from practicing in the securities industry. The U.S. Attorney in the Southern District of New York filed criminal charges, exposing Kamensky to several years in prison if convicted.
In addition, lawyers for Neiman Marcus have filed a complaint in federal bankruptcy court one week ago against Kamensky and Marble Ridge seeking tens of millions of dollars in damages.
“Marble Ridge violated its fiduciary duties, acted in bad faith and abused the bankruptcy process by coercing a third-party bidder not to submit a bid to fund a cash-out option for unsecured creditors that would have benefitted plaintiffs and their stakeholders but limited Marble Ridge’s profits on a competing proposal,” Neiman’s lawyers at Jackson Walker and Kirkland & Ellis wrote.
“Marble Ridge attempted to cover up its illegal activities by pressuring the competing bidder to change its story and misleading the committee, the United States Trustee, the debtors, the court and the public about its actions,” the complaint states. “This is simply the latest chapter in a two-year campaign that Marble Ridge has waged to harm the debtors and their stakeholders. Plaintiffs seek damages and sanctions sufficient to compensate the debtors and their estates for the harm caused by Marble Ridge’s breach of fiduciary duty and its bad faith conduct and to deter future misconduct.”
In its case filed today in federal court in the Southern District of New York, the SEC claims that Kamensky abused his fiduciary duties as one of three co-chairs for the committee of unsecured creditors in Marble Ridge’s pursuit to purchase securities being distributed as part of the Neiman Marcus bankruptcy proceedings.
Kamensky coerced a competing bidder, Jefferies Financial Group, to drop its bid, which was higher than Kamensky’s own bid and would have led to a larger distribution to the unsecured creditors, the SEC alleges.
Kamensky told Jefferies that it should withdraw its offer or he would use his position as co-chair of the committee to reject the bid, according to the SEC.
“Misrepresentations and deceptive conduct have no place in securities offerings,” said Daniel Michael, Chief of the SEC’s Division of Enforcement’s Complex Financial Instruments Unit. “As alleged, Kamensky abused his position as a fiduciary to the Neiman Marcus unsecured creditors by secretly working against them.”
The SEC lawsuit states that Kamensky, on July 31, learned that Jefferies “submitted a bid for the shares that was higher than his, contacted Jefferies to coerce it into withdrawing its bid.”
“Kamensky told Jefferies that he would use his position on the Official Committee of Unsecured Creditors to ensure that Jefferies’ bid was rejected and that, if Jefferies nevertheless submitted a bid and drove the price up, Marble Ridge would cease doing business with Jefferies,” the SEC complaint states.
In response, according to the SEC, Jefferies “withdrew its bid in response to Kamensky’s threat but reported the misconduct to the UCC.”
“When Kamensky learned of this, he again reached out to Jefferies to have it cover up that Kamensky tried to prevent Jefferies from participating in Neiman’s offering of securities,” the SEC states. “Kamensky candidly admitted to Jefferies that he could go to jail if Jefferies did not adopt a false version of their previous conversation. Jefferies refused to cover up for Kamensky and his conduct was ultimately revealed.”
In response to Neiman’s complaint, Marble Ridge announced on Aug. 21 that it planned to close. The hedge fund agreed to escrow $55 million pending a hearing later this month before Chief Bankruptcy Judge David Jones, who is handling the Neiman Marcus restructuring.
This isn’t the first legal tangle Neiman and Marble Ridge have fallen into with each other.
It all began two years ago, when Marble Ridge sued Neiman Marcus in Dallas state court on claims that the department store illegally siphoned its $1 billion European e-commerce unit, MyTheresa, to its parent company in a transaction that was strategically planned o benefit Neiman’s private equity owners. The MyTheresa assets are the same assets at issue in the prosecutors’ new claims against Kamensky.
Neiman Marcus lawyered up with Lynn Pinker Hurst & Schwegmann and filed a defamation countersuit against Marble Ridge shortly after, claiming the hedge fund repeatedly spread false statements that the retailer was in default of its debt in an attempt to leverage its own position as a debtholder. The alleged false statements came at a time when Neiman Marcus was negotiating with lenders, an outcome that delayed the company’s entrance into bankruptcy court by a couple years.
Both lawsuits landed in Dallas state Judge Tonya Parker’s court, where both are currently in Neiman’s favor. In two separate rulings last spring, Parker handed a pair of slam-dunk wins to Neiman — first, by dismissing Marble Ridge’s lawsuit, and second, by declining to dismiss Neiman’s countersuit.
Both rulings are currently up on appeal.