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)
Was at Lowe’s a few weeks ago. Was impressed with the ‘tool kits’ they have assembled for very decent prices.
Great gifts for teens just starting to drive, or kids going to college & NOT living in dorms.
How many here on FR recall that Sears used to actually sell HOUSES? In a kit, IIRC.
You have an interesting point. Same can be said for Walmart of just a few years ago. Now, same can be said for Amazon killing off businesses in shopping malls. It’s just how life works.
Someday something will come along and kill of Walmart and Amazon. It may not be in the next 5 or 10 years, but it will happen.
It was a murder-suicide..................
Richard Sears started a mail order business selling watches in 1886. Al Roebuck fixed watches and joined Sears in 1887. Their first store opened in Chicago in 1925. Kmart bought Sears in 2005. Today there are 9 Sears stores in Los Angeles nice watches. Wallmart has 9 super centers in Los Angeles. Walllmart is busier.
I hope that SOB gets what he deserves. In spades.
He killed thousands of jobs and intentionally crushed the value of the brand.
Good memories of what was the Midwest middle class life. A high school buddy bought a motorcycle from Monkey Ward. Times have quickly flip flopped mores/morality and consumer ways. So is life better for those that do not know better?
I cannot answer for certain.
“I wonder what they will do with the Kenmore brand name, has anyone heard if someone has bought that yet?”
I came out of retirement a couple of months ago to work at the local Sears on a part time basis (don’t need the money, just something to get me out of the house). They won’t sell the Kenmore appliance line because it is keeping Sears alive for now. Half the people who come in looking at appliances wind up buying Kenmores.
What is killing Sears is being attached to malls that are dying.
Thank you for the reply.
Yes, ruined many lives.
Romney is a horse ass. Just like John F’n Kerry.
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