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Date Posted: 20:59:45 11/19/03 Wed
Kmart trust sues former executives
Lawsuit claims the managers spent company money on luxury cars, nannies and a $230,000 Vegas trip.
November 19, 2003: 5:12 PM EST
CHICAGO (Reuters) - Former Kmart executives spent company money on luxury cars, nannies and even a $230,000 jaunt to Las Vegas while the discount retailer was nearing bankruptcy, according to a lawsuit filed on behalf of Kmart creditors.
The civil suit, filed on Tuesday in Kmart's home state of Michigan by the Kmart Creditor Trust, alleges that former Kmart Chief Executive Charles Conaway and other top officers lost the company billions of dollars before Kmart filed the largest ever retail bankruptcy in January 2002.
Kmart (KMRT: Research, Estimates) has since emerged from Chapter 11 protection as Kmart Holdings Corp., with a new management team, investors led by hedge fund owner Edward Lampert, and far less debt.
The creditor trust was set up as part of Kmart's bankruptcy reorganization earlier this year to try to recover money for creditors who lost billions. A tiny portion of any money recovered is earmarked for former shareholders, whose investments were wiped out when Kmart reorganized.
The lawsuit alleges that former managers led Kmart into a "financial meltdown" and seeks the return of any money improperly taken from the company.
According to the lawsuit, certain former executives billed the company $100,000 for nannies, and some were given luxury cars including Jaguars, a BMW and a Lexus. The suit also claims that former executives arranged a $230,000 trip to Las Vegas for 60 employees.
Conaway's attorney, Scott Lassar, said the former Kmart CEO "poured his heart and soul into trying to turn around the giant retailer. At all times he acted honorably and in the best interests of Kmart's employees and shareholders," Lassar continued in a written statement e-mailed to Reuters.
Lassar said Conaway "looks forward to rebutting the accusations in the complaint in court."
The trust has already sued six former executives, seeking to recover loans given to them shortly before Kmart filed for bankruptcy. Some 25 former executives were given $28.8 million in so-called retention loans. Kmart's attorneys say the loans were handed out improperly because former managers misled directors about the company's financial health.
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Conaway, once viewed as an aggressive young star executive, left Kmart two months after the bankruptcy filing.
In court documents filed earlier this year, Kmart's attorneys pinned at least some of the blame for the retailer's financial distress on Conaway and his management team, alleging that they underpaid vendors, inflated financial forecasts, paid employees salaries that far exceeded company norms, bought company planes and used them for personal trips.
Criminal fraud charges against two former Kmart employees were dismissed earlier this month.
http://money.cnn.com/2003/11/19/news/companies/kmart_perks.reut/
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Kmart trust sues former executives