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The Financial Times reports that “the bankrupt estate of Sears Holdings is suing Eddie Lampert, the US retailer’s longtime chairman and billionaire backer, arguing he and other shareholders ‘siphoned’ more than $2 billion from the company before it filed for Chapter 11.”

The Washington Post reports it this way: “The lawsuit, filed this week, accuses Lampert of a ‘multiyear and multifaceted scheme’ to siphon more than $2 billion of the company’s assets to himself, his hedge fund ESL Investments and other insiders.”

And Fox News writes: “The 110-page complaint filed with the US Bankruptcy Court in New York, also names a slew of former Sears directors, including Lampert’s former college roommate U.S. Treasury Secretary Steve Mnuchin as well as several executives at the billionaire’s hedge fund, ESL Investment, who acquired the bankrupt retailer in a $5.2 billion deal earlier this year, as culprits in the looting.”

Mnuchin is a former vice-chairman of Lampert’s hedge fund.

The Post writes that “the ties between Sears and Lampert’s businesses — which also include Seritage Growth Properties, a real estate investment trust that in some cases has effectively become Sears’s landlord — have long raised concerns among shareholders. In 2017, Lampert and Sears’s board paid $40 million to settle a lawsuit alleging that Lampert had tried to sell off the company’s best real estate to Seritage. Sears shareholders argued that the ‘highly conflicted transaction’ would ‘plunge the company into insolvency’.”

FT goes on:

“The legal action is the latest twist in a protracted fallout over the demise of Sears, which was once the country’s biggest department store chain. The company, which struggled to adapt to the rise first of big box rivals such as Walmart and later internet shopping, racked up more than $10bn in losses since the turn of the decade and filed for Chapter 11 in October.

Sears only narrowly escaped an outright liquidation, and the court gave Mr Lampert the green light in February to buy hundreds of its stores out of bankruptcy.

“The new lawsuit centres on a series of transactions involving Sears and Mr Lampert, who created the modern-day company when he engineered an $11 billion merger of Sears and discount store rival Kmart in 2004. The estate’s complaint pointed to various assets that Sears spun off over several years, including real estate as well as a stake in the company’s Canada arm and clothing chain Land’s End.

“ESL and Mr Lampert were the ‘primary beneficiaries’ of the transactions, claimed the lawsuit, which argued proceeds from the disposals were ‘grossly inadequate’. It said the defendants knew the company was insolvent and turned to ‘asset stripping’.”

quotes ESL as issuing a statement in which it said that “all transactions were done in good faith, on fair terms, beneficial to all Sears stakeholders and approved by the Sears Board of Directors, made up of a majority of independent directors, as well as the company’s Related Party Transactions Committee, which was itself comprised of independent directors and advised by separate independent financial and legal advisors.”
KC's View:
Gee, what a shock … Eddie Lampert gets sued for essentially plundering a company that he owned for $2 billion - a company that he demonstrated absolutely no talent for running during the time that he owned it. He has enough money, so he must’ve had a talent for something … and now maybe we know exactly what that talent was.

It reminds me of the moment from Casablanca, when Captain Louis Renault, played by Claude Rains, says, “I am shocked- shocked- to find that gambling is going on in here!” And then they hand him his night’s winnings.