The DOJ and the SEC charged the manager of a hedge fund with securities fraud, wire fraud, extortion and obstruction of justice related to his “conduct in the offer of certain shares being disposed of as part of the Neiman Marcus Group Ltd. bankruptcy proceedings.” (See here for the DOJ Complaint and here for the SEC Complaint.)
In parallel complaints filed in the U.S. District Court of the Southern District of New York, the DOJ and the SEC alleged that after learning that a bid was placed for the securities of the bankrupt issuer that was higher than the one placed by the manager’s fund, the manager contacted the other bidder to pressure it into withdrawing the higher bid. The manager allegedly threatened to (i) use his position on the bankruptcy committee to ensure that the higher bid would be rejected and (ii) withhold future business between the manager’s fund and the other bidder. In response to the threat, the DOJ and the SEC claimed, the other bidder withdrew its bid, but reported the improper conduct to the bankruptcy committee.
The DOJ and the SEC alleged that after finding out that the committee was aware of his conduct, the manager attempted to persuade the other bidder to describe the manager’s conduct as a miscommunication rather than a threat. Following further investigations, the manager withdrew from the bankruptcy committee and advised investors in his managed fund that the fund would wind down.
The DOJ charged the manager with securities fraud, wire fraud, extortion and obstruction of justice. The SEC charged the manager with violations of federal securities antifraud provisions and is seeking a permanent injunction and civil penalties.