In the hardball world of corporate debt restructuring, the case of Dan Kamensky should be a cautionary tale about the risks of pushing the envelope too far in tactics. With a wave of company blow-ups looming as interest rates rise, it is a story that should be considered by an industry that remains as cut-throat as ever.

Before running foul of the law in 2020, Kamensky was a fixture in the US distressed debt industry. After serving two months in prison over a charge of bankruptcy fraud, he could have quietly slunk away. Instead, he has become more ubiquitous than ever.

Regulators have sought to ban him from returning to public investing. But a more mellow version of Kamensky is making his name in credit markets as a kind of thought leader — speaking at industry conferences, tweeting and even starting a non-profit advocacy group that presses the interests of distressed debt investors.

Kamensky, at his nadir, represented the worst traits of the most vicious corner of Wall Street. This neighbourhood, since his fall, remains complicated and brutal, giving him plenty to do in his new incarnation.

He started his career as a corporate lawyer before stints as an investor at Lehman Brothers and at the hedge fund of the billionaire, John Paulson. Kamensky’s downfall came during the 2020 bankruptcy of retailer Neiman Marcus where his own hedge fund, Marble Ridge, had been a bondholder. He attempted to cheaply buy some of the $172mn of settlement proceeds allocated to unsecured creditors like him by threatening a rival bidder.

At the time, he was chair of a creditors’ committee, something that made his aggression and subsequent cover-up an obvious breach of fiduciary duty; in a secret recording later used as evidence, he acknowledged that he was in danger of going to jail.

Still, his plight elicited sympathy from some rivals, who viewed his treachery more as a clumsy lapse in judgment over a few hours, in the midst of pandemic isolation, than a master conspiracy. They point out, too, that the settlement proceeds that were the subject of the case existed only because Kamensky’s modest fund had won an unexpected legal judgment against Neiman’s private equity owners. If not for his meltdown, Kamensky might have been feted by peers.

And some of his peers knew that “there but for the grace of God go I”. In the years before the Neiman case, distressed debt funds were flush with cash but found few good opportunities. As a consequence, players adopted sharp tactics against each other. Multiple industry insiders insist that Kamensky’s real misfortune was to be caught on tape engaging in behaviour that is not uncommon.

Kamensky has since co-founded a non-profit group, the Creditor Rights Coalition, that seeks to influence the discourse around holders of junk bonds and leveraged loans. As market players, judges and law professors reflect on the warfare within the industry, his experience has made him a singular resource.

“Dan is diligent and thoughtful. He is always drilling down in the details,” said James Millar, an attorney at Faegre Drinker who has written articles for the CRC. “We need more of that.”

The CRC produces a free email newsletter that goes to almost 2,000 subscribers each week. It is occasionally irreverent; one recurring feature is known as the “Peabody Award for Exclusive Opportunism in Bankruptcy”, a reference to a controversial 2017 case where a group of creditors designed a lucrative but judicially approved deal to restructure coal producer Peabody Energy.

Kamensky has not shied away from discussing his transgression in the Neiman case, but that has not stopped some from questioning his place when it comes to calling out excesses. One bondholder, who profited in the Peabody case, remarked of the newsletter that “the 2023 Pot Calling the Kettle Black Award goes to . . . Dan Kamensky!” 

Federal bankruptcy court judge David Jones granted Kamensky the chance to pursue his ultimately successful Neiman Marcus claims but ended up calling him a “thief . . . of the lowest character”. Jones told the Financial Times that, while he was not closely following Kamensky’s comeback, “it’s a great example of the best that our country offers its citizens — a second chance”. “Much like bankruptcy, that second chance comes with a responsibility,” he added.

Since Kamensky’s fall, behavioural norms in distressed credit markets have hardly improved. His views, contested by opposing debtors and private equity firms, might be wrong or right. But more light shed on industry machinations is a positive development.

sujeet.indap@ft.com