A prominent hedge fund founder from Long Island, N.Y., pleaded guilty to abusing his position on a Neiman Marcus Group bankruptcy committee in a scheme to allow his hedge fund to purchase the store’s distressed assets at a at a discounted price.

Daniel Kamensky, 48, the founder of the New York-based hedge fund Marble Ridge Capital, pled guilty to one count of bankruptcy fraud in the Southern District of the U.S. District Court of New York after being charged by federal prosecutors in September with pressuring a rival bidder to abandon its higher bid for assets for Neiman Marcus assets so his hedge fund could get them cheaper,  U.S. Attorney Audrey Strauss said in a statement.

Kamensky faces up to five years in prison when he is sentenced on May 7. However, after pleading guilty, federal prosecutors have agreed to recommend a 12-to-18-month sentence, according to a spokesperson for Kamensky.

“Daniel Kamensky abused his position as a committee member in the Neiman Marcus Bankruptcy to corrupt the process for distributing assets and take extra profits for himself and his hedge fund,” Strauss said. “Kamensky predicted in his own words to a colleague: ‘Do you understand ... I can go to jail?’ ... ‘This is going to the U.S. Attorney’s Office.’ His fraud has indeed come to the U.S. Attorney’s Office and now has been revealed in open court.”

Kamensky was the principal of Marble Ridge, which had assets under management of more than $1 billion and invested in securities in distressed situations, including bankruptcies.

Prior to opening Marble Ridge, Kamensky worked for “many years as a bankruptcy attorney at a well-known international law firm and as a distressed debt investor at several prominent financial institutions,” Strauss said.

Neiman Marcus is a luxury retail chain that filed for bankruptcy in May of last year. Kamensky was appointed to sit on its unsecured creditors’ committee.

Kamensky landed in hot water over his attempts to suppress a rival bid for 140 million shares of Neiman Marcus’s MyTheresa (MYT) e-commerce business so that Marble Ridge could purchase the securities at a lower price. Kamensky then attempted to persuade the rival bidder to cover up the scheme, according to evidence from the investment bank employee he contacted.

Kamensky was negotiating with the committee in July 2020 to allow Marble Ridge to offer 20 cents per share to purchase MYT Securities from any unsecured creditor who preferred to receive cash rather than MYT Securities as part of the settlement, according to Strauss.

In late July, however, Kamensky learned that a Manhattan-based investment bank had announced they were interested in offering a better price of between 30 cents and 40 cents per share—substantially higher than Kamensky’s bid—for the MYT shares.

“That afternoon, Kamensky sent messages to a senior trader at the investment bank telling him not to place a bid, and followed those messages up with a phone call with the trader and a senior analyst," according to the U.S. Attorney's Office. "During that call, Kamensky asserted that Marble Ridge should have the exclusive right to purchase MYT Securities, and threatened to use his official role as co-chair of the committee to prevent the investment bank from acquiring the MYT Securities. Kamensky also stated that Marble Ridge had been a client of the investment bank in the past but that if the investment bank moved forward with its bid, then Marble Ridge would cease doing business with the investment bank.”

The investment bank decided not to make a bid to purchase MYT Securities and informed the legal advisor to the committee of its decision, telling the advisor they made that decision because Kamensky had asked them not to, according to prosecutors.

Advisors to the committee informed Marble Ridge counsel of the conversations and, after speaking with Kamensky, Marble Ridge counsel falsely informed the advisors that Kamensky had not asked the employees not to bid, but instead had told them to place a bid only if they were serious, according to prosecutors. 

Later that evening, Kamensky contacted the investment bank employee again to influence what he would tell the creditor committee and law enforcement about Kamensky’s attempt to block the investment bank’s bid for the Securities. 

“Kamensky said at the outset of the call, in substance, ‘this conversation never happened,’" Strauss said. 

During the call, according to Strauss, Kamensky asked the employee to say he had been mistaken and that Kamensky had actually suggested that the investment bank only bid if it was serious, and made the following comments: "Do you understand…I can go to jail?”  “I pray you tell them that it was a huge misunderstanding, OK, and I’m going to invite you to bid and be part of the process.”  “But I’m telling you ... this is going to the U.S. Attorney’s Office. This is going to go to the court.” “If 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.”

Kamensky admitted in a subsequent call with the Office of the United States Trustee, conducted under oath and in the presence of counsel, that his calls to the investment bank trader were a “terrible mistake” and “profound errors in lapses of judgment,” prosecutors said.

"Mr. Kamensky has admitted what he did was wrong. He deeply regrets his conduct on July 31, 2020 and the great pain it has caused his family, colleagues and others," said Kamensky’s attorney, Joon H. Kim of Cleary Gottlieb Steen & Hamilton LLP, in a statement e-mailed to Financial Advisor magazine. 

Marble Ridge later resigned from the committee and advised its investors that it intended to begin winding down operations and returning investor capital, according to the release.