Margin Call
The New York Appellate Division for the First Judicial Department imposed a consent six month suspension
On February 3, 2021, in the United States District Court for the Southern District of New York, respondent pleaded guilty to committing an act of bribery or extortion in connection with the federal bankruptcy laws (see 18 USC § 152[6]). Respondent timely notified this Court and the Attorney Grievance Committee (AGC) of his conviction. Respondent was sentenced to six months’ imprisonment and six months’ supervised release with a condition of home detention. He was fined $55,000 with an assessment of $100. He was released from prison two months early.
Stipulated conduct
The parties have stipulated to the following facts. Respondent started his own hedge fund, Marble Ridge Capital, in 2015. Marble Ridge Capital, in 2018, invested in unsecured bonds of Neiman Marcus. Neiman Marcus transferred a valuable online business, the MyTheresa subsidiary, out of the reach of its creditors ostensibly for the benefit of Neiman Marcus’ private equity owners. During the next two years, respondent through Marble Ridge Capital pursued fraudulent conveyance claims against the private equity owners of Neiman Marcus.
Neiman Marcus commenced Chapter 11 Bankruptcy proceedings in May 2020. Respondent applied and was appointed to the Official Committee of Unsecured Creditors (Creditors’ Committee) on behalf of Marble Ridge Capital. By statute, members of the Creditors’ Committee are required to act as fiduciaries to all unsecured creditors and to put the interests of the unsecured creditors above their personal interests.
In the midst of the bankruptcy proceedings, Neiman Marcus agreed, as part of a settlement, to transfer back certain illiquid assets which would be held by a trust for the benefit of the unsecured creditors. After the settlement was accepted, the counsel to the Creditors’ Committee made a proposal to allow unsecured creditors, as a class, the option to receive an upfront cash payment for their share of the illiquid assets that they are entitled to receive under the settlement. Marble Ridge Capital and other bondholders would fund the cash payment. The Creditors’ Committee voted to continue negotiations with bondholders, including Marble Ridge Capital, for a potential cash-out option as part of a settlement.
During these proceedings, the counsel to the Creditors’ Committee informed respondent that a trading desk at an investment bank expressed interest in placing a bid for the cash out option that was being negotiated. Specifically, the investment bank expressed interest in purchasing the Series B shares of the MyTheresa subsidiary from the unsecured creditors of Neiman Marcus.
Respondent telephoned a trader who worked on the trading desk at the investment bank, and he told the trader to refrain from placing a competing bid. Respondent threatened the trader by suggesting that he would use his position on the Creditors’ Committee to ensure that the investment bank’s bid would be rejected. He also informed the trader that he would withhold Marble Ridge Capital’s future business from the investment bank if it did not step down. The investment bank initially communicated its decision not to make a bid; however it did place a bid the next day.
Several hours after respondent’s phone call to the investment bank, the counsel to the Creditors’ Committee informed respondent that the trader believed that respondent had threatened the investment bank. Respondent subsequently placed a second call to the trader. Respondent attempted to persuade the trader to falsely state that he was mistaken about the nature of respondent’s previous call and that respondent only suggested that the investment bank should bid if it was making a serious offer. Respondent was federally indicted one month later.
Respondent conditionally admits that his conduct, violated Rules of Professional Conduct (22 NYCRR 1200.0) rules 8.4(b) (illegal conduct that adversely reflects on the lawyer’s honesty, trustworthiness or fitness as a lawyer) and 8.4(h) (other conduct that adversely reflects on the lawyer’s fitness as a lawyer).
The suspension was imposed retroactive to his “serious crime” suspension. (Mike Frisch)