Marble Ridge Reaches Agreement With Neiman Marcus — but a Texas Judge Has Sharp Words for the Hedge Fund

Hedge fund Marble Ridge appears to have reached an agreement with retailer Neiman Marcus that could potentially end the two-year saga between the upscale department store chain and the hedge fund whose founder was arrested on criminal fraud charges over his conduct in the retailer’s bankruptcy proceedings. But in a Friday afternoon court hearing, a Texas judge had harsh words for the attorneys representing Marble Ridge over the fund’s latest court filing before the deal was announced.

Daniel Kamensky wasarrestedon September 3 and charged with fraud for allegedly abusing his fiduciary duty as a member of Neiman Marcus’s unsecured creditors’ committee. The governmentallegedthat Kamensky tried to use his position as a member of that committee and as a client of investment bank Jefferies to keep the bank from making a rival offer for shares of a Neiman Marcus entity that Marble Ridge wanted to buy at a lower price. Then, the government alleged, he attempted to cover up his actions. Jefferies disclosed these actions to the unsecured creditors committee when it became clear he had broken the law.

In a 651-page brief — initially filed in a redacted version on Wednesday and unsealed on Thursday night — Marble Ridge did not deny the impropriety of Kamensky’s actions. But the hedge fund sought to block the retailer’s request to freeze $55 million of the hedge fund’s assets, claiming Neiman Marcus does not have legal grounds for the restraining order because no financial harm was done to Neiman Marcus’s unsecured creditors. (Neiman Marcus officially emerged from bankruptcy on Friday.)

Bankruptcy judge David Jones, who is presiding over the bankruptcy hearings, excoriated Marble Ridge's attorneys in the hearing, taking issue with the content of Marble Ridge’s filing.

“There are a lot of things in that response that are incredibly bothersome to me,” the judge said. “I’m contemplating appointing special counsel to defend and prosecute on behalf of the integrity of the bankruptcy process. That is in large part due to the attitude that comes through in the response that was filed. People don’t understand how seriously I take this and I’m about to start showing everyone. I’ve declined to show the depth of my convictions, but I’m getting ready to start.”

Just days before Kamensky’s arrest, Neiman Marcus filed a complaint against Marble Ridge and a temporary restraining order to block the fund from winding down its operations until it pays the retailer $55 million in damages.

“主基金没有seek to defend or excuse the conduct of Daniel Kamensky…Nor does the Master Fund seek to minimize in any way the importance of integrity and fair dealing in the bankruptcy process,” the hedge fund’s attorneys wrote in the filing.

Still, Marble Ridge claimed Kamensky’s actions did not prevent the sale of shares in MyTheresa, a Neiman Marcus asset valued at roughly $1 billion, from going forward, nor did they cause any losses to holders of those securities. In the filing, Marble Ridge noted that Jefferies submitted a conditional proposal for the shares shortly after it had earlier said it would withdraw its bid at Kamensky’s urging. What’s more, according to Marble Ridge, the committee chose not to accept Jefferies’ proposal “for reasons wholly unrelated to Mr. Kamensky’s conduct,” but rather because it was “illusory.”

An exhibit attached to the filing contains an email exchange between Mo Meghji, the committee’s financial adviser, and the committee's attorney in which Meghji expressed concern that the Jefferies offer was too complex and not strong enough to seriously consider.

“Btw, note that the Jefferies bid of $0.3025 [per share] has a lot of contingencies, the most material of which is if the price of a [comparable] basket of stock goes down, then their price goes down by 2x the percentage,” wrote Meghji.

In response, the attorney for the committee wrote back, “Mo, they made this so complicated that I don’t see this happening. Hopefully I am wrong.”

“Unfortunately, I agree with you. They are now trying to pull a fast one on us, having got rid of Dan . . . . we just need to round up a few parties and get the price higher,” Meghji wrote, according to the filing. “Let’s chat tomorrow and I’m confident we can surface some good #s.”

[IIDeep Dive:In Five Hours, Daniel Kamensky Destroyed His Career. Why?]

Meghji said in a September 22 deposition, when asked what he meant by his remarks about Jefferies, “Well, that was probably not the greatest choice of words for an email. I was having a conversation with my attorney. But I was frustrated by the complexity and the quality of their bid, or proposal. And I just felt that it was not actionable.”

In the Friday hearing, Richard Pachulski, the attorney representing the unsecured creditors’ committee, acknowledged that while the email exchange that Marble Ridge included in its filing was accurate, he and Meghji regretted that it “denigrates” Jefferies.

“我想说清楚,Jefferies everyt所做的那样hing right, they showed the highest integrity, they did the right thing when they initially called me,” Pachulski said. “I think part of the problem is it was not an offer that we thought was going to work. With 20/20 hindsight, we still agree with that… Rather than say, with 20/20 hindsight, that they were trying to pull a fast one, it was just not realistic to make an offer; we didn’t even have a series B certificate at the time. I think frankly that Jefferies deserves a defense for what they did.”

Judge Jones agreed.

“This is a reason I’m having a negative reaction” to Marble Ridge’s filing, he said. “I said at confirmation that Jefferies had acted with honor and I thought they were a credit to the profession and were worthy of participating in what I agreed to be a special process. I have the same thing to say about Mr. Meghji. I have never seen him do anything less than 110 percent of the right thing.”

Jefferies declined to comment. Meghji did not respond to a request for comment in time for publication.

Meghji testified that he thought that the creditors’ committee could create a market and get a better price for the shares than what Jefferies had offered, according to the filing. “My judgment was that the unsecured creditors could recover and should recover a higher amount than some of the bids on the table today,” he said in the deposition.

According to the filing, after Kamensky’s actions on July 31, several other potential bidders besides Jefferies expressed interest in purchasing the shares, including investment bank Citi; investment firm Brigade, another Neiman Marcus note holder; and hedge fund Anchorage Capital.

In its filing, Marble Ridge claimed the unsecured creditors’ committee did not accept any of the cash-out proposals because they felt the shares will be worth more in time than any of the offers the committee is getting now.

“Consequently, by definition the unsecured creditors have not been harmed economically,” Marble Ridge said in the filing. Marble Ridge asserted that while there are many reasons the creditors’ committee hasn’t accepted an offer for the shares, “Mr. Kamensky’s conduct is not one of them.”