by T. GormanPosted on Posted in SECActions

Deteriorating economic conditions in the retail market, which began before the current difficult business environment, have only been amplified by the pandemic. As with most situations, the difficulties created for some become opportunities for others. There are always some, unfortunately, who want to make whatever opportunity is available just a bit better for themselves – and often at the expense of others. That is the case for a hedge fund operator who is a former partner at a blue chip New York City law firm. U.S. v. Kamensky, No. 1:20-mj-09381 (S.D.N.Y. Filed Sept. 3, 2020); SEC v. Kamensky, Civil Action No. 1:20-cv-07193 (S.D.N.Y. Filed Sept. 3, 2020).

Daniel Kamensky is the founder and manager of New York based hedge Fund Marble Ridge Capital. Mr. Kamensky became a member of the Official Committee of Unsecured Creditors in the bankruptcy proceedings for Neiman Markus, once a top tier department store chain. As a member of the Committee Mr. Kamensky had a fiduciary duty to act in the best interest of all the unsecured creditors. Eventually he became co-chair of the Committee. The hedge fund founder was very familiar with his obligations as a committee member, having practiced law in the area while an associate at a major New York City law firm.

The Committee negotiated with the owners of the department store chain during the course of the proceedings to obtain securities known as MyTheresa Series B Shares. Ultimately, the Committee was successful in coming to a settlement on the point, obtaining 140 million shares of MYT Securities for the benefit of certain unsecured creditors of the bankruptcy estate.

In July 2020 Mr. Kamensky negotiated with the Committee for Marble Ridge to purchase a portion of the securities. He offered 20 cents per share for the MYT Securities from an unsecured creditor who preferred cash rather that the securities as part of the settlement.

At the end of July Mr. Kamensky learned that a New York City financial services company had informed the Committee it would bid between 30 and 40 cents per share for the securities. Later the same day Mr. Kamensky sent a message to a senior trader for the financial services company telling him not to place the bid. During a subsequent telephone conversation, held on the same day, Mr. Kamensky told the trader that his hedge firm should have the exclusive right to purchase the securities. After noting that Marble Ridge had been a client of the financial services firm the attorney stated that if the firm moved forward with its bid for the securities, the client relationship would end. Mr. Kamensky also stated that as co-chair of the Committee he would use his influence to block the bid.

The financial services company dropped its bid, but only after informing counsel for the Committee of his discussions with attorney Kamensky. Later the same evening Mr. Kamensky called an employee of the financial services firm and tried to convince him to falsely state that the person had been mistaken about the intent of attorney. At one point the attorney told the employee he could go to jail if the conversation was revealed.

Later, during an under oath interview with the Office of the U.S. Trustee Mr. Kamensky stated he made a “horrible” mistake. Mr. Kamensky resigned his positions and told investors in the fund to begin winding matters up. He has been charged with securities fraud, wire fraud, extortion and obstruction of justice. The criminal case and the SEC’s civil case are both pending.

Tagged with: , ,

by T. GormanPosted on Posted in SECActions

Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy . . . A major concern for regulators is what we don’t know.” This is the message of a report titled Managing Climate Risk in The U.S. Financial System, published by the U.S. Commodity Futures Trading Commission, September 9, 2020 (here). The report was prepared by the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the CFTC.

The first of its kind report for the agency, concludes that climate change is already impacting, or is anticipated to impact, nearly every aspect of the economy and human health unless steps are immediately taken. The risks include “disorderly price adjustments in various asset classes . . . as well as potential disruption” of the proper functioning of financial markets. Those risks are so significant that simply dealing with them may prove so disruptive that the process will itself “pose risks to the financial system if markets and market participants prove unable to adopt to the rapid changes. . .” required. This is because to mitigate those risks the economy must be transitioned to “net-zero” emissions.

Much is known about the risks of climate change, the Report notes. Regulators need to move forward using that information to help provide solutions. At the same time, much is not known about unfolding risks. For example, while “understanding about particular kinds of climate risk is advancing quickly, understanding about how different types of climate risk could interact remains in an incipient stage. Physical and transition risks may well unfold in parallel, compounding the challenge.” Those unfolding risks may also spawn others from existing frailties and weaknesses in systems. It is thus critical that calls to strengthen and support regulators be headed.

Equally critical to properly handling existing risks and those that will unfold will be close coordination between the public and private sectors. The Report thus calls for regulators to work “closely with the private sector to ensure that financial institutions and market participants . . .” are effectively working together to address the risks, adopt current systems and innovate new ones to effectively move forward. The solutions to the risks being faced will no doubt require “new financial products, services and technologies . . .”

The Report concludes with a series of recommendations, bolstered by detailed citations, which include the following:

· Financial markets will only be able to channel resources efficiently to activities that reduce greenhouse gas emission if an economy-wide price on carbon is in place at a level that reflects the true social cost of those emissions

· Climate change could pose systemic risks to the U.S. financial system

· Regulators should be concerned about risks of climate-related “sub-systemic” shocks, that is those that impact a particular sector, asset class or region of the country

· Existing legislation provides U.S. financial regulators with wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk now

· Regulators and market participants around the world are generally in the early stages of understanding and experimenting with how best to monitor and manage climate risk

· Insufficient data and tools to measure and manage climate related financial risks remain a key constraint

· The disclosure by corporations of information on material climate related financial risks is essential, although the existing disclosure regime has not resulted in sufficient information to be useful to market participants and regulators

· International engagement by the U.S. could be significantly more robust

The lengthy, thoughtful report, represents not just a map for addressing climate change but for moving the economy forward in a positive manner.

Tagged with: ,