Posted on 04/18/2019 11:14:04 AM PDT by Red Badger
NEW YORK – Sears Holdings Corp sued longtime former chairman Eddie Lampert, his hedge fund ESL Investments and others like Treasury Secretary Steven Mnuchin, claiming they illegally siphoned billions of dollars of assets from the retailer before it went bankrupt.
The lawsuit, made public on Thursday, was filed by the restructuring team winding down Sears’ bankruptcy estate and suing on behalf of creditors, many of whom blame Lampert for the retailer’s downfall.
It followed the billionaire’s $5.2 billion purchase in February of most Sears assets, including the DieHard and Kenmore brands, after a bankruptcy auction.
The complaint seeks the repayment of “billions of dollars of value looted from Sears,” including while it was in what Lampert would later call a “death spiral” where it sold core assets to meet daily expenses with no real plan for becoming profitable.
“Had defendants not taken these improper and illegal actions, Sears would have had billions of dollars more to pay its third-party creditors today and would not have endured the amount of disruption, expense, and job losses resulting from its recent bankruptcy filing,” the complaint said.
Sears filed for Chapter 11 protection in October after a prolonged decline under Lampert marked by large losses, scant investment and lost market share to retailers such as Walmart Inc, Home Depot Inc and Amazon.com Inc.
Others sued include ESL President Kunal Kamlani; Bruce Berkowitz and his Fairholme Capital Management, which was a large Sears shareholder; and Seritage Growth Properties, which took over 266 of Sears’ best stores in a 2015 spinoff.
Mnuchin, a college roommate of Lampert’s at Yale University, had been a director at Sears and ESL, and previously worked with Lampert at Goldman Sachs.
In a statement on behalf of ESL, Lampert and Kalmani, ESL said it vigorously disputed the lawsuit, calling the allegations “misleading or just flat wrong,” and saying all transactions were done in good faith and for shareholders’ benefit.
Fairholme said it was reviewing the complaint. Seritage and the Treasury Department did not immediately respond to requests for comment.
‘DEATH SPIRAL’
Lampert created Sears Holdings through the 2005 merger of Sears, Roebuck & Co and Kmart Holdings Corp.
According to the complaint, Lampert and other insiders had by 2011 begun hatching a plan to “strip” Sears of assets, as the Hoffman Estates, Illinois-based retailer’s performance fell short and more ESL investors were demanding their money back.
The complaint said Lampert ordered the creation of bogus financial plans projecting a Sears turnaround, and used them to help transfer five major assets worth more than $2 billion, including Land’s End and Sears Hometown Outlet.
Sears’ bankruptcy estate in particular faulted the conduct of Lampert and others in the $2.58 billion Seritage spinoff.
It said that transaction undervalued the real estate by at least $649 million, stuck Sears with hundreds of millions of dollars of rent and fees from leasing most of the 266 stores back, and was structured to benefit favored shareholders like Lampert, in part through Seritage’s payment of dividends.
Seritage reported $24.1 million of funds from operations in 2018, a measure of cash flow, and last July obtained a $2 billion loan package from Warren Buffett’s Berkshire Hathaway Inc. Berkshire is not a defendant.
Thursday’s lawsuit was filed with the U.S. bankruptcy court in White Plains, New York.
It seeks a declaration that the alleged looting constituted “fraudulent transfers” that should be undone or, more likely, justified damages.
The reorganized Sears was expected to have about 425 Sears and Kmart stores, down from roughly 3,500 at the time of the 2005 merger.
The case is Sears Holdings Corp et al v Lampert et al, U.S. Bankruptcy Court, Southern District of New York, No. 19-ap-08250. The main bankruptcy case is In re Sears Holdings Corp in the same court, No. 18-bk-23538.
(Reporting by Jonathan Stempel in New York; editing by Steve Orlofsky and Marguerita Choy)
FWIW, Lowes now sells Craftsmen tools — maybe just old inventory.
They bought the brand. Sears can’t sue for incompetent management. They were in a death spiral when the internet came into being and they still focused on mall sales. K-Mart the same thing. Can’t fault someone who reads the writing on the wall and cleans up on a bargain.
Nope, new stock.
Sounds like something Mitt Romney would do.
I believe that I read a while ago that somebody bought the Craftsman brand.
But they just let it drag on and on. That seems to be the focus.
Sears should have been wound up along with Kmart years and years ago. They were sloppy, inefficient and had no hope of competing with Target or Wal-Mart.
Sears was on the wrong path before the Web. In the ‘80s, they kept expanding into other businesses (financial services etc) instead of improving their primary business. By 1989, Walmart had passed them.
Had Sears management done the right thing, they would be the Amazon of today, and Jeff Bezos would still be peddling used books.................
Didn’t Lampert actually keep Sears alive long after everyone else gave it up as dead?
Vampire Capitalism at its finest.
It was mutually assured destruction...............
Corporate Raiders....................
This has got to be the saddest story of all.
I agree Lampert and the others jumped the shark a long time ago with they got OUT of their core business.
Can you imagine, in the 1990s when Amazon was just an idea, had Sears gone online, it would have been the modern day version of the Sears Catalog that spread commerce through out the United States.
Sears today would be the largest company in the world.
But these idiots, had no insight.
Sears, is now only a story for Business Clsses on what NOT to do.
I worked for a company in the 80s that was in similar health and market forces at the time. 3 CEOs and their teams kept up the window dressing while each month we lost a wing or a floor in our building, for years. When all said and done we went from a happy Friday to fighting over what was left in the postage meter on Monday. Nobody wants to hear the truth.
Discover Card still exists but Sears was pressured into selling it because their competitors didn’t like the idea of Sears owning it.
How’d that work out for Sears?
It’s okay to diversify. Tell the competition not to collude.
at long last...
In 1900 Sears killed off local mercantile like swatting flies. Karma is a bitch with a long memory and thirst for arrogance.
I wonder what they will do with the Kenmore brand name, has anyone heard if someone has bought that yet?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.