The founder of the now shuttering hedge fund Marble Ridge was arrested on Thursday over his alleged conduct in the Neiman Marcus bankruptcy, the latest development in a bizarre episode that has consumed the proceedings as the retailer moves closer to emerging from bankruptcy.
Dan Kamensky, Marble Ridge’s managing partner and principal, was charged with securities fraud, extortion, wire fraud and obstruction of justice, according to the U.S. Attorney’s Office for the Southern District of New York.
The charges follow explosive findings in August by the U.S. Trustee in the Neiman’s bankruptcy that Kamensky had allegedly attempted to pressure the financial firm Jefferies Financial Group Inc. from competing with his firm in a transaction involved in the retailer’s restructuring.
“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,” acting Manhattan U.S. Attorney Audrey Strauss said in a statement Thursday.
“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.’” Strauss said. “As today’s charges show, Kamensky was right about that.”
Kamensky declined to comment, according to a representative for Marble Ridge. A representative for Neiman Marcus also declined to comment.
A report by the U.S. Trustee in the case had cited chat logs and phone call recordings in which Kamensky was captured apparently instructing a Jefferies employee to get his firm to back off from the transaction, and then later also imploring the employee not to characterize his statements as coercive.
According to the trustee’s report, Kamensky was recorded as saying, “[I]f you’re going to continue to tell them what you just told me, I’m going to jail, OK? 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.”
The episode follows the conflict throughout the bankruptcy proceedings over Neiman’s handling of its Mytheresa web site in 2018. Marble Ridge had been among the more vocal creditors arguing that the retailer’s transfer of the German luxury web site’s assets around that time had kept its value out of their reach.
The Mytheresa transfer was itself also the subject of parallel inquiries in the case, including by the official creditors committee, which ultimately also took issue with the transfer.
The transfer, part of Neiman’s out-of-court efforts at the time to restructure its debt, had involved moving Mytheresa assets out of the retailer’s capital structure and into Neiman Marcus Group Inc., the parent company entity. That entity is controlled by private equity fund Ares Management and investment fund Canada Pension Plan Investment Board, which had taken over the retailer in a $6 billion leveraged buyout in 2013. The Neiman Marcus Group parent entity and Mytheresa are not part of the bankruptcy proceedings.
The dispute eventually led to a settlement in the case in July, in which the Neiman Marcus Group Inc. parent agreed to allocate 140 million shares of Series B preferred stock in Mytheresa to a general unsecured creditors’ trust. In addition, the Neiman’s bankruptcy estate would itself also put in $10 million to go toward general unsecured creditors.
Kamensky’s alleged conduct involved his efforts to pressure Jefferies not to bid on the shares of Series B preferred stock in Mytheresa that would be allocated as part of the settlement, according to the U.S. trustee’s report.
The retailer heads to a confirmation hearing Friday morning in Texas bankruptcy court to seek its approval for a reorganization plan that would convert some $4 billion in debt to equity, giving control of its business to its first lien lenders. The reorganization would essentially mark a handover of the business from Ares and CPPIB.
After the court approves the plan on Friday, as is generally expected, the retailer will aim to formally emerge from bankruptcy later this month. A successful reorganization would preserve the more than century-old retailer, and keep its doors open at a time that the COVID-19 pandemic has dealt yet another blow to brick-and-mortar retail and pushed several major clothing retailers into bankruptcy.
Neiman’s had entered into bankruptcy with $5.5 billion in funded debt, and said it had furloughed most of its 13,200 employees as pandemic-related lockdowns went into effect in March and April.
The retailer has said it has since brought back most of its employees, and also sought to close most of its Last Call locations as part of the bankruptcy. But it has now opened 43 Neiman Marcus stores, two Bergdorf Goodman stores, and five Last Call stores.