By Soma Biswas 

Hedge-fund founder Dan Kamensky was sentenced to six months in prison for bankruptcy fraud over his attempt to quash a rival bid for shares of a Neiman Marcus Group Ltd. business that he wanted to buy himself.

The sentence, handed down in a federal courtroom in New York, falls short of the 12 -to-18-month prison term sought by prosecutors but exceeds the punishment sought by Mr. Kamensky's lawyers, who asked that he only be put on probation and be required to do community service.

The founder of hedge-fund firm Marble Ridge Capital LP, Mr. Kamensky admitted to prosecutors that last year he tried to sideline a competitor's bid for shares of Mytheresa, a thriving e-commerce business formerly owned by Neiman Marcus, which was at the time in bankruptcy.

His actions amounted to a criminal violation of bankruptcy law because, as a member of an official creditors committee in the Neiman Marcus chapter 11 case, he had an obligation to look out for all of the company's creditors, not just his firm's own financial interests.

The bankruptcy-fraud charge he pleaded guilty to in February carried a maximum five-year prison sentence. In addition to the six-month prison term, Mr. Kamensky was sentenced Friday to six months of supervised release under home detention.

Mr. Kamensky's lawyers had argued he ought to be spared prison time and instead be put on probation and required to do community service, saying his actions weren't premeditated or planned and ultimately didn't harm other Neiman Marcus creditors.

Prosecutors disagreed, telling Judge Denise Cote that allowing Mr. Kamensky to avoid prison would send the wrong message about the seriousness of his conduct.

Mr. Kamensky, a former bankruptcy attorney with deep experience investing in troubled companies, "used his skills to corrupt the bankruptcy process," lawyers for the U.S. attorney's office in Manhattan said in their sentencing recommendation.

Mr. Kamensky, 48 years old, is a well-known figure in the tightknit world of big corporate restructurings and distressed-debt investing.

Before starting his own hedge fund in 2015, Mr. Kamensky worked at law firm Simpson Thacher & Bartlett LLP, investment bank Lehman Brothers Holdings Inc. and hedge-fund manager Paulson & Co.

Before his arrest, Mr. Kamensky had waged a battle for more than two years against Neiman Marcus and its private-equity backers over Mytheresa, a fast-growing online subsidiary. He took issue with a spinoff transaction that he said deprived Neiman's creditors of its crown jewel, while rewarding the retail chain's owners.

Neiman Marcus filed for bankruptcy last year after the coronavirus pandemic shut down nonessential shopping across the country. During the course of the bankruptcy, Mr. Kamensky helped extract a concession from Neiman's owners to return some of their shares of Mytheresa.

The Mytheresa shares were an important part of the recovery for unsecured creditors, and Mr. Kamensky offered to buy those shares from other creditors for cash upfront, hoping for a profit once Mytheresa went public down the line.

A potential competitor, however, showed up proposing a similar deal for the shares, at a higher price than he was offering. When Mr. Kamensky learned of the rival bidder, he told its investment bank, Jefferies LLC, to stand down and not submit an offer, according to a government inquiry into his actions.

Write to Soma Biswas at soma.biswas@wsj.com

 

(END) Dow Jones Newswires

May 07, 2021 12:50 ET (16:50 GMT)

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