U.S. authorities allege that a hedge fund manager attempted to abuse his position on a committee of creditors in the bankruptcy of a luxury department store to benefit his own portfolio.
The U.S. Securities and Exchange Commission (SEC) brought charges against Daniel Kamensky, founder of New York-based hedge fund, Marble Ridge Capital, alleging that he sought to take advantage of his role as co-chair of the unsecured creditors committee in the bankruptcy of Neiman Marcus Group Ltd.
The SEC’s complaint, filed in federal district court in New York, charged Kamensky with violating federal securities laws. It is seeking a permanent injunction and civil penalties.
In a parallel criminal proceeding, Kamensky was also charged with securities fraud, wire fraud, extortion, and obstruction of justice in Manhattan federal court.
None of the allegations have been proven, and he is presumed innocent of the criminal charges.
In its complaint, the SEC alleged that Kamensky sought to manipulate a bidding process to benefit his portfolio, at the expense of the company’s other creditors.
“Kamensky coerced a competing bidder for the securities into withdrawing its bid, which was higher than Kamensky’s own bid and would have led to a larger distribution to the unsecured creditors,” it said.
U.S. authorities said that the rival bidder, an unnamed investment bank, was prepared to offer between 30¢ and 40¢ per share for certain securities that were being distributed as part of the bankruptcy, whereas Marble Ridge was offering 20¢ per share.
The SEC and the U.S. attorney allege that Kamensky warned the bank not to submit a bid, and that he threatened to use his position on the creditors’ committee to prevent its bid from succeeding.
“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.
Authorities also alleged that he then sought to cover up the misconduct.
“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,” she added.