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Sears Lawsuit Accuses Former CEO of “Asset Stripping”

National  + Weekender  | 

The estate of Sears Holdings has filed suit against former chairman and CEO Eddie Lampert, charging that he and former board members stole billions from the beleaguered retailer, once the world’s largest, during the long run-up to its Chapter 11 filing. In a statement, Lampert and his hedge fund, ESL Investments, characterized the lawsuit’s charges as “baseless allegations and fanciful claims.”

The suit represents the latest development in a Sears saga that saw the retailer file for bankruptcy last October, and Lampert save it from what likely would have been complete liquidation by buying it. February’s acquisition through an ESL affiliate, Transform Holdco, salvaged about 400 surviving stores from rounds of closures that saw 3,500 Sears and Kmart locations go dark over a 15-year period.

Yet, Lampert’s leadership at Sears Holdings, where he was also the largest shareholder, repeatedly came under fire over the years. He faced scrutiny for loading up Sears Holdings with debt from his hedge fund, and for selling some of its most valuable properties to a spinoff REIT, Seritage Growth Properties, in 2015.

Sears Holdings alleges in the suit that Lampert’s actions “were unmistakably intended to hinder, delay and defraud creditors, and/or occurred when the company was insolvent and had insufficient capital to continue its operations and to repay its billions of dollars in debt.”

Had those things not occurred, the lawsuit alleges, “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.”

The suit also alleges that Lampert and his co-defendants “knew the company had no plan to return to profitability” and worked “to create a false record to cover up their asset stripping, at Lampert’s personal direction,” including “bad-faith predictions” of a “dramatic turnaround.”

In its statement, ESL said that under Lampert’s leadership, Sears Holdings used more than $2 billion in proceeds from asset sales to pay down debt and fund operations. Each of the sales was authorized by the Sears Holdings board and its independent directors, according to the statement, which also said that ESL did not receive special treatment.

“We are confident that the processes we followed for each of these transactions are unimpeachable,” ESL said.

Among those named in the suit is Steven Mnuchin, a former Sears Holdings board member and longtime friend of Lampert. Mnuchin resigned from the board when he was named Treasury Secretary.

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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