A Recent Example Of The Consequences Of Bankruptcy Fraud Allegations

According to the Department of Justice, Dan Kamensky, the founder of hedge fund Marble Ridge Capital, pled guilty in February to bankruptcy fraud related to Neiman Marcus. The hedge fund founder pled in response to allegations of a scheme to pressure a rival bidder to abandon its higher bid for assets in connection with Neiman Marcus’s bankruptcy proceedings so that Marble Ridge could obtain those assets for a lower price. The former bankruptcy attorney and experienced distressed debt investor was the principal of Marble Ridge which had assets under management of more than $1 billion that were invested in securities in distressed situations, including bankruptcies. He reportedly engaged in a scheme which unfolded as follows:

• In May of 2020, luxury department store chain Neiman Marcus filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas
• Kamensky applied and was appointed to be a member of the Committee overseeing the bankruptcy at the very beginning which meant he had a fiduciary duty to represent the interests of all unsecured creditors as a group throughout the bankruptcy process
• The Committee negotiated with the owners of Neiman Marcus to obtain certain securities for the benefit of certain unsecured creditors of the bankruptcy estate; in July of 2020, Marble Ridge offered (with Kamensky negotiating) to purchase these securities from any unsecured creditor who preferred to instead receive cash as part of that settlement
• In late July, Kamensky learned that a higher bid with similar terms had been offered by a Manhattan-based diversified financial services company
• The same day, he messaged and spoke verbally with several members of the diversified financial services company. During those conversations, he asserted that Marble Ridge should have the exclusive right to purchase the securities and threatened to use his official role as co-chair of the Committee to block the financial services company
• The financial services company then declined to bid

The hedge fund is now in the process of winding down operations and returning investor capital while the 48-year-old Kamensky is scheduled to be sentenced in May of this year and faces up to five years of prison time.

Why is it Important to Avoid Allegations of Bankruptcy Fraud? 

Filing for bankruptcy is a complicated process and innocent mistakes are understandable. However, it is imperative that you be as truthful as possible when it comes to bankruptcy. In addition to helping you maintain the credibility that is essential when it comes to discharging debts, being truthful can help you avoid potentially serious consequences of allegations of fraud. The most serious of these is prison time as indicated in the example outlined above. And if you’re wondering why there is even a question of fraudulent behavior because you know you would never engage in such a thing – recognize that statistics indicate that approximately 10 percent of bankruptcy filings in America involve fraudulent claims.

Bankruptcy Attorneys You Can Rely On 

Having someone in your corner can be essential when it comes to ensuring that you are moving through the bankruptcy process in a way that increases your chances of obtaining the financial relief you seek. As the Plantation bankruptcy attorneys at Nowack & Olson, PLLC, you can depend on us to assist you with navigating the bankruptcy process. Our four decades of combined experience enables us to assist our clients in a wide range of scenarios and we welcome the opportunity to help you. Contact us today to begin with a consultation.

Resource:

justice.gov/usao-sdny/pr/new-york-hedge-fund-founder-pleads-guilty-bankruptcy-fraud-connection-neiman-marcus#:~:text=KAMENSKY%2C%2048%2C%20of%20Roslyn%2C%20New%20York%2C%20pled%20guilty,Sentencing%20has%20been%20scheduled%20for%20May%207%2C%202021.