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Sears creditors suggest Chairman Eddie Lampert structured deals to enrich himself

Sears creditors are questioning a series of deals between the company and its chairman and primary sharehold...

Posted: Nov 7, 2018 3:09 PM
Updated: Nov 7, 2018 3:09 PM

Sears creditors are questioning a series of deals between the company and its chairman and primary shareholder, Eddie Lampert, saying they might have been structured to benefit him rather than the company.

A committee of those owed money by Sears filed a motion in bankruptcy court Tuesday asking to be given access to documents detailing the deals, saying they are "potentially problematic." Creditors are particularly concerned about deals involving Sears and ESL, the hedge fund that Lampert owns.

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"Actions taken by the company, and Lampert and ESL...suggest that the insider transactions may be part of an extended pattern of conduct that served to benefit certain (insider) equity holders at the expense of creditors and [Sears Holdings]," said the filing.

Another deal the creditors are questioning is a 2015 sale of hundreds of Sears' most valuable properties to a separate company, named Seritage (SRG) of which Lampert is also chairman. The motion said the deal was done to "siphon value away from the company on favorable terms," conducted "at what appears to be discounted prices."

The creditors' motion suggests they could seek funds from ESL and Seritage in order to increase the pool of money that will be used to pay Sears' creditors as part of the bankruptcy process.

A spokesman for ESL defended all the deals with Sears, saying that Lampert did everything he could to help Sears stem losses and return to profitability.

"We have every confidence that all transactions involving ESL and Eddie Lampert are valid and enforceable, based on fair and reasonable terms," said the spokesman. "Any legal claims that attempt to challenge these transactions will have no merit and we will defend ourselves vigorously against any asserted claims."

All the deals were approved by independent members of the Sears board of directors, he added.

Sears declined to comment on the creditors' filing, and Seritage did not respond to a request for comment.

Lampert was the majority shareholder of Kmart and a major investor in Sears when he brought the two companies together to form Sears Holdings in 2005.

The company has struggled almost continually since then, and has not reported a profit since 2010. Lampert served as CEO from 2012 until Sears filed for bankruptcy on Oct. 15, though he remains its chairman.

Over the years ESL made at least $2.6 billion in loans to Sears Holdings, according to the bankruptcy filing. ESL made Sears back the loans with hard assets such as real estate or credit card balances. That increases the chance Lampert will be repaid while other creditors get only pennies on the dollar for what they are owed.

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