Sears Holdings Corporation finally sued former chairman Eddie Lampert, his hedge fund ESL Investments and others investors like Treasury Secretary Steve Mnuchin, claiming these persons stole billions of dollars in assets from the iconic retailer leading to its bankruptcy in 2018.
Made public on Thursday, the court case was filed by the restructuring team handling Sears' bankruptcy estate and suing on behalf of creditors, many of whom blame Lampert for the retailer's downfall. The lawsuit was filed with the U.S. bankruptcy court in White Plains, New York.
Lampert and Mnuchin were college roommates at Yale University. Mnuchin is a director at Sears and ESL and previously worked with Lampert at Goldman Sachs. Mnuchin is now the chief negotiator of president Donald Trump in the ongoing trade talks with China.
Others sued include ESL President Kunal Kamlani; Heritage Growth Properties, which took over 266 of Sears' best stores in 2015, Bruce Berkowitz and his Fairholme Capital Management, which was a large Sears shareholder.
The company formerly known as Sears, Roebuck & Company filed for bankruptcy in October 2018 as a prelude to resurrecting itself as a digital retailer. Sears was the world's largest retailer almost a century ago.
Now known as Sears Holdings Corporation, the retailer also owns Kmart Corporation, the big box department store chain founded in 1899. Sears Holdings closed some 142 stores by the end of 2018. It earlier closed 46 stores as part of the bankruptcy.
The company retains 506 locations, including 482 full-line department stores. It also operates 360 Kmart stores. The much-despised Lampert has resigned as CEO but remains chairman of Sears Holdings. He remains the company's largest investor.
The court case filed Thursday seeks the repayment of "billions of dollars of value looted from Sears." This amount includes core assets Lampert sold 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," said the legal complaint.
Lampert established Sears Holdings by merging Sears, Roebuck & Co and Kmart Holdings Corporation in 2006.
The complaint alleges Lampert and other insiders by 2011 began hatching a plan to strip Sears of assets as investors were demanding their money back. It said Lampert ordered the creation of fake financial plans projecting a Sears turnaround.
He then used these fake plans to help transfer five major assets worth more than $2 billion. These assets included Land's End and Sears Hometown Outlet.
The lawsuit seeks a declaration the looting by Lampert, Mnuchin et al constituted "fraudulent transfers" that should be undone or, more likely, justified damages.
