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.
The suit accuses Lampert, his ESL Investments hedge fund and others associated with Sears and ESL — including Treasury Secretary Steven Mnuchin, a former investor and executive at ESL — of stripping the chain of billions of dollars worth of assets even as the retailer racked up huge losses. The suit was filed in the U.S. Bankruptcy Court for the Southern District of New York by the bankruptcy restructuring team that is winding down what remains of the company after Lampert — through Transform Holdco, an affiliate of ESL — purchased of most of Sears assets, including stores and its Kenmore and DieHard brands, for $5.2 billion in February
The lawsuit lays outs its charge in its introduction.
“As Sears was sliding into bankruptcy, Eddie Lampert—its long-time controlling shareholder, chairman, and chief executive officer—in concert with and assisted by other defendants, transferred billions of dollars of the company’s assets to its shareholders for grossly inadequate consideration or no consideration at all,” the lawsuit stated.
“By far the largest share of the value siphoned from the company went to Lampert himself, ESL, the hedge fund he controls, and other insider defendants. As Lampert and the other defendants stripped Sears of billions of dollars of assets and encumbered its remaining property with new liens, Sears was suffering billions of dollars of losses annually, and had not generated positive cash flow from operations for years—much less cash flow sufficient to pay principal and interest on its billions of dollars of debt.”
Click here to read expanded analysis of what the lawsuit means for Lampert, his partners, and Sears in RIS' sister publication Chain Store Age.