Sears Holdings Corp. has filed a blockbuster federal lawsuit that essentially claims former CEO Eddie Lampert drove the company into bankruptcy, by siphoning off the company's assets and preventing it from being able to pay off debts.
Sears Holdings Corp sued longtime Chairman Eddie Lampert, his hedge fund ESL Investments, and former directors including Treasury Secretary Steven Mnuchin, accusing them of allowing the retailer to be looted of billions of dollars before its October 2018 bankruptcy.
The lawsuit lays outs its charge in its introduction.
Sears Holdings alleges Lampert's actions "were unmistakably meant to hinder, delay and defraud creditors and/or occurred when the company was insolvent and had insufficient capital to continue its operations and to repay its billions of dollars in debt".
Representatives for Lampert and ESL could not immediately be reached for comment.
"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", lawyers for the estate said in a court filing.
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Lampert and Mnuchin were college roommates at Yale University.
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.
Sears, which also operates Kmart, filed for Chapter 11 bankruptcy protection in October amid years of massive losses and sales drops. In the case of Lands' End, Lampert and ESL allegedly pocketed at least $490 million from the April 2014 spinoff after rejecting a $1.6 billion offer from the Tommy Hilfiger investment group and Leonard Green & Partners. The complaint, filed in the U.S. Bankruptcy Court in New York Wednesday, seeks to recover the property that was allegedly fraudulently transferred.
These financings and other transactions involving Sears' assets were undertaken to facilitate the company's continued operations and implement its transformation plan.
"The debtors' allegations are misleading or just flat wrong", ESL said, adding that Sears received proceeds of more than $3 billion from the transactions, all of which were applied to reduce debt and fund operations.
Lampert established Sears Holdings by merging Sears, Roebuck & Co and Kmart Holdings Corporation in 2006.