NEW YORK -- Sears Holdings Corp. is suing its former chairman and largest shareholder Eddie Lampert, alleging the billionaire stripped the once iconic company of more than $2 billion in assets.
The lawsuit, which was filed late Wednesday with the U.S. Bankruptcy Court of the Southern District of New York, also names former Sears directors, including U.S. Treasury Steven Mnuchin as well as executives at Lampert's hedge fund ESL.
Sears, which also operates Kmart, filed for Chapter 11 bankruptcy protection in October amid years of massive losses and sales drops. Lampert saved the company by acquiring the assets in a court-approved auction through an affiliate of ESL in February. Unsecured creditors had tried to block the sale, maintaining that Lampert was to blame for the company's downfall.
The 110-page lawsuit cited sales or spinoffs of key assets that were allegedly used to line Lampert's own pockets and that of his hedge fund. That includes the spinoff of Lands' End in 2014 and Lampert's real estate investment trust Seritage Growth created four years ago to extract revenue from Sears' properties.
"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 suit stated.
ESL said it "vigorously" disputes the claims and calls them "baseless" and "fanciful" in a statement emailed to The Associated Press.
"The debtors' allegations are misleading or just flat wrong," ESL said, adding that Sears received proceeds of more than $3 billion from the transactions, all of which were applied to reduce debt and fund operations.
"ESL was a constant source of financing for Sears Holdings for many years," it said.
Lampert, who merged Sears and Kmart in 2005, steered Sears into Chapter 11 bankruptcy protection in October. The company's corporate parent had 687 stores and 68,000 employees at the time of the bankruptcy filing. At its peak in 2012, its stores numbered 4,000. The approval of Lampert's new business means roughly 425 stores and 45,000 jobs will be preserved.
Unsecured creditors, who rank at the bottom of the list to be paid, objected to Sears' sale to Lampert, alleging falsified financial projections, excessive buybacks, and a spinoff of brands that stripped the business of key assets in a 100-plus page document filed in late January. It chronicled what it called a "tortured story of Sears." That served as a preview of Wednesday's lawsuit.
Before the sale, Lampert personally owned 31 per cent of the Sears' outstanding stock, and his hedge fund has an 18.5 per cent stake, according to FactSet. He stepped down as CEO in October after serving in that role since 2013.
