The hedge fund supervisor on the centre of the Neiman Marcus chapter admitted making one of many worst errors of his life as a Division of Justice report accused him of extreme misconduct and threw the retailer’s rescue plan into turmoil.
Veteran investor Daniel Kamensky made the admission to a US chapter watchdog investigating an altercation between his hedge fund Marble Ridge Capital and funding bankers at Jefferies & Co.
Each corporations had been jostling to purchase out $160m of illiquid securities issued by the failed division retailer, in line with a report filed in court docket on Wednesday.
Mr Kamensky indicated he may need to chop off future enterprise from his hedge fund until Jefferies dropped its plan to supply extra for the shares than Marble Ridge.
He additionally mentioned he would use his place as co-chair of the committee of Neiman’s unsecured collectors to forestall Jefferies from buying the shares, the report mentioned, despite the fact that that might imply that fellow collectors obtained much less cash.
“DO NOT SEND IN A BID,” Mr Kamensky instructed an unnamed Jefferies govt through the Bloomberg on the spot messaging platform, in line with the report.
Marble Ridge “breached [its] fiduciary obligation of loyalty to the collectors it represented by coercing an out of doors investor to chorus from bidding”, wrote Henry Hobbs of the Workplace of the US Trustee, a DoJ unit that oversees the chapter course of.
Mr Kamensky admitted to the trustee that making an attempt to affect Jefferies was a “grave mistake”, the report mentioned.
The trustee’s report was ordered after the allegations got here to mild originally of this month. Decide David Jones on the time known as them “alarming”, indicating that they might set off legal guidelines that enable a creditor’s claims to be diminished as punishment for misconduct throughout chapter proceedings, in addition to potential felony penalties.
Marble Ridge declined to touch upon the report. The court docket has but to schedule a listening to to resolve on subsequent steps, which might delay an agreed-upon plan at hand management of Neiman Marcus over to its senior lenders.
The damning account of Mr Kamensky’s actions, and the skilled and private penalties that might comply with, mark a unprecedented flip in a chapter case that was on its strategy to changing into a triumph for Marble Ridge.
For years, the agency had accused Neiman’s personal fairness homeowners, Ares Administration and Canada Pension Plan Funding Board, of fraudulently transferring its worthwhile ecommerce subsidiary Mytheresa out of the attain of collectors.
It gained a powerful vindication when an investigation ordered by the chapter court docket for which Mr Kamensky had tirelessly advocated concluded that the fraudulent switch claims have been credible, paving the best way for a $172m settlement for unsecured collectors.
Marble Ridge, which holds $65m of Neiman bonds, was looking for to purchase choice shares that had been awarded to fellow unsecured collectors as a part of that settlement. Lots of these illiquid securities have been held by commerce distributors equivalent to Chanel and Estée Lauder, and Mr Kamensky was getting ready to supply roughly 20 cents on the greenback to these looking for a fast payout.
However on July 31 Mr Kamensky learnt that Jefferies, which had obtained $200,000 in buying and selling commissions from Marble Ridge within the first half of 2020, was getting ready a better bid on behalf of certainly one of its different shoppers.
Mr Kamensky’s livid outburst initially persuaded the financial institution to stroll away from its supply for the Neiman choice shares, though it has since returned.
By the night of July 31, legal professionals representing Neiman’s different unsecured collectors started studying of the threats, and Mr Kamensky launched an ill-fated effort to undo the injury.
He known as a Jefferies worker whom he hoped would again up his innocuous clarification for his earlier demand that the financial institution again off, which he indicated was motivated by concern that the financial institution was not a critical bidder.
“This dialog by no means occurred,” the hedge fund supervisor started. Alarmed, the banker flipped on his tape recorder.
“They’re going to say that I abused my place as a fiduciary, which I in all probability did, proper?”, the veteran investor confided to the unidentified Jefferies worker.
“Possibly I ought to go to jail,” Mr Kamensky added, in what he later admitted was an effort to get Jefferies to “handle the message” surrounding the financial institution’s abortive bid. “However I’m asking you to not put me in jail.”
In his testimony to the trustee, Mr Kamensky appeared contrite. He “freely admitted he had made the decision and mentioned it was a critical mistake, one of many worst of his life”, in line with the report.
Mr Kamensky resigned as co-chair of the unsecured collectors committee on August 1.