Sears has filed a lawsuit against former CEO and Chairman Eddie Lampert, his company ESL Investments and other investors, claiming they wrongfully stripped $2 billion in assets from the company, reported the Chicago Tribune. The suit claims Lampert and his investors systemically took the retailer’s most valuable assets as Sears suffered losses, harming creditors and sending Sears intro bankruptcy.
Lawyers for Sears allege in the suit that “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” if the assets hadn’t been taken from the company. The company is seeking to recover the property it claims was fraudulently transferred.
The suit also claims Lampert promised an unrealistic turnaround, including by directing employees to produce financial plans reflecting “fanciful, bad-faith” predictions. The company then pursued fraudulent transactions involving Orchard Supply Hardware Stores, Sears Hometown and Outlet Stores, Sears Canada and Lands’ End, with allegations including that:
- Lampert rejected a $1.6 billion bid for Lands’ End from Leonard Green & Partners and Tommy Hilfiger in favor of a spinoff that would retain his stake, which earned him at least $490 million;
- The real estate at 266 Sears stores was undervalued by at least $649 million when it was spun off to Seritage Growth Properties, then leased back to Sears with unfair terms;
- Sears shareholders received Orchard stock valued at more than $100 million from the 2011 spinoff, but Sears itself was paid nothing.
ESL called the allegations “misleading or just flat wrong” in a statement sent to the Chicago Tribune. “We are confident that the processes we followed for each of these transactions are unimpeachable. We reject the debtors’ allegations and will vigorously contest their complaint concerning these transactions,” the hedge fund said.
The firm also claims that Sears was solvent during the entire period when the transactions took place, and received more than $3 billion from them. ESL said that it provided Sears with $2.4 billion in secured financing, and all transactions with Sears “were done in good faith, on fair terms, beneficial to all Sears stakeholders,” and that they were approved by Sears’ board and a committee overseeing transactions involving potential conflicts of interest.