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Sears on Thursday lodged a lawsuit against its former Chief Executive Officer Eddie Lampert and a string of its high-profile past board members, including Lampert's former Yale roommate, Treasury Secretary Steven Mnuchin, for allegedly stealing billions of dollars from the once-storied retailer.
Sears Holdings filed for bankruptcy this past October, after years of losses under Lampert, who was then its chairman, CEO and largest shareholder. Lampert saved the retailer from complete liquidation by buying it through Transform Holdco, an affiliate of his hedge fund ESL Investments.
But Sears’ unsecured creditors repeatedly argued that Lampert was the cause of, not the solution to, Sears’ downfall. They believe that Lampert, along with Sears’ biggest shareholders, unduly benefited from deals that occurred under Lampert’s watch, including its spinoff of Lands’ End in 2014, and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through some Sears properties a year later.
Those allegations laid the groundwork for the unsecured creditors to pursue their claims against Lampert and others on behalf of Sears. Lampert had requested a release from potential ligation as part of his deal to buy Sears out of bankruptcy but was denied the protection.
“Altogether, Lampert caused more than $2 billion of assets to be transferred to himself and Sears’ other shareholders and beyond the reach of Sears’ creditors,” the lawsuit alleged on Thursday.
It further alleged that, “In an effort to create a false record to cover up their asset stripping, at Lampert’s personal direction, Sears employees repeatedly produced financial plans reflecting fanciful, bad-faith predictions that the company would experience an immediate and dramatic turn-around from deep and mounting losses to sudden profitability.”
The suit names numerous defendants besides Lampert and Mnuchin, including two high-profile directors: Bruce Berkowitz, a hedge-fund manager who was a large investor in Sears, and Kunal Kamlani, president of ESL.
“ESL Investments, Inc. vigorously disputes the claims in the debtors’ complaint against ESL, Mr. Lampert, and Mr. Kamlani, which repeats baseless allegations and fanciful claims. As we have previously said, the debtors’ allegations are misleading or just flat wrong,” a spokesman from ESL said.
Mnuchin, who resigned from the Sears board when he was nominated to head Treasury, wasn’t immediately available to comment.
“Fairholme is in the process of reviewing the filings,” said a spokesman for Berkowitz’s hedge fund, Fairholme Capital Management.
Berkowitz took his own swing at Lampert’s management of Sears last year, when a lawyer for Fairholme told the bankruptcy court that Sears was “not so much a melting ice cube as it is a puddle.”
He called the retailer’s tumble from grace a “multi-year liquidation” that happened “without court supervision.”