Sunday, November 29, 2020

New York hedge fund founder charged with fraud tied to Neiman Marcus bankruptcy (2020)

Neiman Marcus Store
This article focuses on the ethical theories of Individualism, Utilitarianism, Kantianism, and Virtue Theory. The company Neiman Marcus filed for bankruptcy, which caught the eyes of hedge fund founder Daniel Kamensky. Kamensky was bidding up against a New York investment bank to purchase shares in the company. Kamensky bid less than the investment bank, which led him to blackmail the bank to back out of their bid. As a result, the hedge fund founder was hit with multiple federal criminal charges, such as securities fraud, wire fraud, extortion, and obstruction of justice. As a Kantian the proper action would have been to counter-bid against the investment bank, keeping business legal. Kamensky extorted his rival so that he could make a greater profit on the bankruptcy. Kamensky lacks Utilitarianism as his actions do not benefit the majority. The investment bank is not happy with the outcome and Neiman Marcus is losing out on money. There was no respect shown to the investment bank as Kamensky did not seek to make a rational decision in this situation. Kamensky violated virtue theory by interfering with the four main virtues of character which are courage, honesty, self-control, and fairness, that allows things to function properly. Neiman Marcus can create an auction to sell off the assets left and Kamensky's company can build an investment team. This will guarantee that Marcus sells the assets at the highest offer and the company would not face any foul-play.


A New York hedge fund manager has been hit with multiple federal criminal charges for his alleged role in being the aggressor to a rival so that he could make a profit from the bankruptcy of Neiman Marcus. Daniel Kamensky who is the founder of Marble Ridge capital was slapped with charges of securities fraud, wire fraud, extortion, and obstruction of justice by the federal prosecutors. Kamensky was serving as a co-chair of unsecured creditors in the Neiman bankruptcy. He used his position on the committee to get the upper hand on an investment bank from offering a higher competing bid on some of Neiman's assets that he coveted for himself. Kamensky knew of the bankruptcy and made his offer on the assets prior to the court hearing for the bankruptcy. He seemed to have a personal agenda on what he could do if he was able to acquire this company. This alleged scheme began in late July when Kamensky and Marble Ridge offered to scoop up assets that are related to the Neimans bankruptcy for 20 cents a share before Neiman bankruptcy court hearing placed on August 3rd.

Daniel Kamensky pictured next to a closed Neiman Marcus
On July 30th, Kamensky learned that the investment bank was preparing an offer on the same assets that he believed he would receive for 20 cents per share. The difference is that the investment bank offered a higher amount than Kamensky at 30 to 40 cents per share which didn't sit well with Kamensky. The next day he called the senior analyst at the bank and made it clear that he had the exclusive rights to buying the shares and would use his power on the committee to keep the investment bank from offering a bid. He used the power that he doesn't have on the investment bank to threaten and also force them to retract their bid so that he could benefit from the bankruptcy. He threatened the investment bank that the Marble Ridge would pull their business from the bank if they did not comply with Kamensky’s demands. This is unethical because it is illegal to threaten other bidders to get what he wanted out of the deal. Everyone has the rights to bid for the company's assets with the highest bidder being the winner. The investment bank withdrew its offer and informed Neiman's lawyers of Kamensky’s actions. “Prosecutors said after the bank withdrew its bid, Kamensky tried to cover his tracks by asking an employee in a recorded call to tell the committee and law enforcement he suggested the bank bid only if it were serious.”(CNBC). Kamensky was pleading, “Do you understand… I can go to jail?” and “They’re going to say that I abused my position as a fiduciary, which I probably did, right?” (CNBC). 


In business, stakeholders are essential to a company. The stakeholder in this situation is Neiman Marcus, Daniel Kamensky, and the investment bank is potential shareholders of Neiman Marcus assets. As Neiman Marcus is going bankrupt it allows these companies to purchase the assets in the company. Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. These companies want to purchase Neiman Marcus assets because they believe that they can make money from them or are getting a great deal that will lead to more capital in the future. This bankruptcy has a big impact on the employees, customers, suppliers, and banks as selling the assets could be the only way that Neiman Marcus could pay back these stakeholders.


There are two versions of individualism that point out actions to achieve the same goal. These goals help the company remain profitable. The first version is Friedman’s who believed that the only job of the company is to maximize profit from the company. The second version is Machan’s, whose goal is to make a profit off the business while maximizing profit within the law. In this situation, Daniel Kamensky didn't think about anyone besides himself. He wanted to maximize his profits by being able to purchase these assets at a low price, so in turn, he could sell them for a higher price which would allow him to have a bigger profit margin. This would have been very profitable if he was able to buy the shares at 20 cents per share. By breaking the law Kamenskey thought that he would capitalize on the investment. He didn't fairly win the assets by having the highest bid. He forced the investment bank to withdraw its offer so that he could benefit himself. He broke the rule by taking away profit from Neiman Marcus who could have maximized his profit by taking the 30-40 cents that were offered from the investment bank. Business actions should maximize profits for the owners of a business but do so within the law which Kamensky didn't do. The investment bank would have found a way to make Marcus a profit even though the company was going bankrupt; they provided Marus with the highest offer for the assets. 


Utilitarianism measures happiness as the only thing of value and they count happiness as pleasure and freedom from pain”.(Salazar)All beings that are capable of experiencing happiness. Utilitarianism maximizes the happiness in yourself and others while everyone's “happiness or pleasure becomes the only things of intrinsic value”.(Mill) Intrinsic value searches for the good things that bring smiles to one's face and makes a person happy overall by focusing on the outcome. Daniel Kamensky did not maximize the happiness of all besides attempting to for himself. Business actions should aim to maximize happiness in the long run for all conscious beings that are affected by the action. The investment bank was impacted by Kamensky's decisions as he took the happiness away from the bank. He took the happiness from the bank as they believed they had an equal opportunity to make a bid on acquiring Neiman Marcus assets. This false hope also leaned on Neiman Marcus as a company that's going through bankruptcy would want to get as much money as they could from selling off their assets. Kamensky broke the law and also tried to frame the analyst from telling others once he realized that he took the happiness away from the investment company. Taking the happiness away from the investment bank put him in hot water and also made the public aware of the unethical person he is. He used his power for personal gain that didn't leave anyone happy.


“The formulation of humanity, states that it is wrong to use people as a mere means to get what you want.”(Salazar) Treating someone as a mere means gives you the upper hand on a person. The formulation states that it is wrong for someone to take advantage of a person to get what they want out of a situation. In this situation, Daniel Kamensky is someone who is trying to benefit for personal gain. Kamensky manipulated the investment bank to get his way by threatening and lying to get the bank to take back their offer. This goes against Kantianism as he did not act in ways that showed respect or honored the investment bank and their choices. The rational thing to do in this situation would have been to place a higher bid than the investment bank that would leave Neiman Marcus no choice but to accept his offer. He decided to be a bully and demand the investment bank to back off from the opportunity which was a way to cheat himself to a better opportunity. He will no longer be trusted in business and broke the rules of Kantianism. Immanuel Kant states that an “act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means”(Kant). Kamensky even went as far as trying to get the employee from the bank to lie to cover up the scheme. The investment bank analyst acted rationally by being motivated to do what's right because it's the right thing to do.  This relates to the universal law that you can't do something without also ensuring that it becomes universal for everyone else to do. This has to be morally right, rational, and permissible to be Kantianism.


Virtue theory promotes the wellness or flourishing of individuals within a society. Virtue theory asks about a person’s character and assesses whether a person is virtuous or not. Virtue theory consists of four main virtues of character which are courage, honesty, self-control, and fairness, which allows things to function properly. Daniel Kamensky has had a very successful business career until this situation which changed his life completely. He had character traits that belong to people who can be virtuous such as courage, wisdom, prudence, intelligence, insight, and leadership. The vices that have been severely detrimental to otherwise savvy and innovative business people include greed, dishonesty, and selfishness. FBI agent William Sweeney said, “Kamensky violated his duty on the Official Committee of Unsecured Creditors in the Neiman Marcus bankruptcy by blocking the sale of securities to an investment bank so his fund could pursue them 'at a significantly lower price.” (daily mail). This manifests his lack of the characteristics of a virtuous businessman. He was dishonest and lacked self-control. Kamensky may have thought he was being prudent by making this plan that would benefit him financially however he was not thinking of the consequences it could lead to if he was exposed. He lacked insight making this poor choice that ruined his career and lost his respect as a leader. Daniel showed this with the way he became greedy for Marcus’s assets and no longer thought rationally enough to recognize the consequences of his actions after he had done something unethical in business. Virtue theory focuses on the consequences of actions that Kemensky felt would not apply to him. This shows a lack of judgment and character on his part. 


After reviewing this case I believe that everyone in business should think like the associate of the investment bank. The associate did the right thing in this case and stopped someone from trying to get away with an unethical crime. He decided to put things in his hands in a way that would best benefit him. This situation was unethical in every aspect. The investment bank was ethical in this situation and did the right thing in reporting this situation to the right people so that no one else could get manipulated by Kamensky. He abused his power and tried to take advantage of the investment bank to show that he has an upper hand on them.  Forcing them to withdraw their bid or losing Kamensky from doing business with the bank in the future was the ultimatum that was given. Kamensky clearly believed that his business interactions with the bank would be more important to them than buying the assets. Kamensky thought he had the power to make the bank back down and they would cower instead of following the proper legal action of reporting his unlawful acts as they did. I believe that he could have approached this situation differently and even found a way to both get a piece of Marcus’s assets. Under oath, Kamensky tried to gain sympathy and explain his recorded conversations with Marcus employees as “a terrible mistake” and “profound errors in lapses of judgment” (CNBC).

  Kamensky didn't look at the bigger picture and how it would affect not only him but make the company look worse for his actions. Kamensky took away potential profits that Marcus could have earned in this situation if he was ethical and did the right thing of just bidding higher than the investment bank. Instead, he threatened them to get rid of their bid and stop business with them there would have been no situation if things were done rationally and the right way. Looking at it from Kaminsky's perspective he knew what he did was wrong and would get him in a lot of trouble. He wanted the analyst to brush the things he said off so that he wouldn't be seen for who he truly is. Daniel Kamensky was wrong in this situation, unethical in my opinion, and the bully that has finally got caught in action. 


Daniel Kamensky destroys his career by aggressively trying to acquire Neiman Marcus assets by threatening an investment bank to get a lower offer. Following Daniel Kamenskys arrest Neiman Marcus should now be able to properly put out the assets for sale and allow companies to bid on the assets. They will also be able to get the best offer without a company withdrawing due to a competitor threatening the competition so that they can benefit more. This could be a better opportunity for the investment bank to get the assets at a lower price than they initially anticipated paying. I believe that they should have an auction that will allow everyone to keep bidding until the highest offer is met which will allow Neiman Marcus to get as much money back as possible. With this in place, it would leave the company with a more direct way to get rid of the asset. Neiman Marcus could implement the auction to cause a smoother transaction and allow everyone to have a fair chance at buying the assets. It would be best if the company makes everyone aware of the opportunity of acquiring their assets.

One idea for the company that Daniel Kamnesky worked for is to develop a team of people that decide what to invest in and at what cost. This will prevent power trips and irrational things from happening if there is a team of people that essentially come together to make a decision. This will help make the decision being made a collective effort compared to one person who could possibly use their position to overpower the decisions being made. This plan will create a voting system that will implement everyone's opinion in the team to equally come to an agreed decision. The plan relates to the mission statement of wanting to expand and creating equal fair opportunities for future growth within the company. The core values are great service, trustworthiness, loyalty, and integrity of the business which will all be followed in this business plan. The company would have to market the changes that they made to gain the trust of the people back. They could make a pitch to the people that explain how internally, this will not happen in the future and apologize for the mistake. This will ensure that decisions will be made ethically and will come to a collective decision before pursuing an action.

These facts and analyses are based on an original research paper by Octavien Abrahams,
"New York Hedge Fund Founder Arrested And Charged With Fraud, Extortion, And Obstruction Of Justice In Connection With Neiman Marcus Bankruptcy"

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