Hedge fund founder seeks probation instead of prison on Neiman bankruptcy fraud

Dan Kamensky, the hedge-fund founder who pleaded guilty to rigging a bid for shares in Neiman Marcus Group’s former Mytheresa subsidiary, is asking a federal judge for leniency amid a show of support from his peers in the distressed-debt investing community.

Kamensky faces up to 18 months in prison under federal sentencing guidelines as part of his agreement with federal prosecutors in February to plead guilty to one count of bankruptcy fraud, which carries a maximum sentence of five years in prison. Instead, his lawyers are asking US District Judge Denise Cote to spare him prison, put him on probation and require him to do community service. He is scheduled to be sentenced on May 7.

Kamensky shut down his hedge fund, Marble Ridge Capital, and laid off all its employees following his guilty plea, and donated $100,000 to charity, according to papers filed on Friday in the US District Court in Manhattan. He also agreed to never serve on an official bankruptcy committee, and has spoken to law students about his mistakes, court papers say.

Among Kamensky’s arguments for leniency are that his actions, while wrong, were a quick reaction in a high-pressure moment during deal discussions, and that they caused no harm to creditors.

“Although Dan’s conduct was wrong, it happened almost instantaneously without premeditation or planning. He reacted in moments of intense stress and pressure,” his lawyers argued in the court filing.

They also highlighted the spread of Covid-19 through the US prison system as a factor against incarceration, and compared the 14-day quarantine protocols for inmates to solitary confinement.

The US Attorney’s Office for the Southern District of New York, which is prosecuting the case, didn’t respond to a request for comment.

Kamensky, the founder of Marble Ridge, was arrested in September after he was caught trying to scuttle the competition to acquire shares in Neiman’s valuable Mytheresa e-commerce business. For more than two years, he had campaigned to win back the fast-growing online subsidiary, saying its spinoff deprived Neiman’s creditors of its crown jewel, while rewarding the department store’s private-equity owners.

During the course of Neiman’s bankruptcy, Kamensky and a few other creditors won a valuable concession from Neiman’s private equity owners—an agreement to throw more Mytheresa shares into the pot for unsecured creditors.

Kamensky had hoped to buy out the newly awarded shares from anyone who opted to sell for cash rather than wait for Mytheresa to go public. He previously admitted to Justice Department bankruptcy watchdogs that he had used his pull with investment bank Jefferies LLC, where he was a client, to get it to scrap a competing offer for the Mytheresa shares so he could buy them himself for less.

Roughly one-fifth of Mytheresa’s parent company, MYT Netherlands, was sold to investors at a $2.2bn valuation earlier this year. Kamensky’s lawyers argue that he was instrumental in the restructuring of the former Neiman unit.

Dozens of Kamensky’s friends and colleagues as well as prominent peers in the world of restructuring and distressed debt attested to his caring nature and good character, including former bankruptcy judge Arthur Gonzalez and Ronen Bojmel, head of the restructuring practice at Guggenheim Securities.

“Dan made serious mistakes—and committed a crime—on July 31, 2020,” Kamensky’s lawyers wrote. “His life will never be the same because of it. But aside from those few moments on that day, Dan has been a loving family man, a reliable friend, an honest professional, a caring employer, and a generous member of his community.”

Kamensky started Marble Ridge in 2015, his first business venture after working in distressed-debt investing and restructuring at Simpson Thacher & Bartlett, Paulson & Co. and Lehman Brothers.

Kamensky is represented by Joon Kim of Cleary Gottlieb Steen & Hamilton LLP. Kim served as acting US Attorney for the Southern District of New York after President Donald Trump fired former US Attorney Preet Bharara.

“As the many moving letters filed with the sentencing submission reflect, there has been a powerful outpouring of support for Dan as a person and as a professional from his colleagues in the industry,” Kim said.