Sears sues ex-CEO


Company says Lampert stripped $2 billion in assets from bankrupt company

By Lauren Zumbach - Chicago Tribune



Edward Lampert and his hedge fund were sued by Sears Holdings Corp., which asserts that they wrongly siphoned $2 billion in assets from the company as it headed for bankruptcy.

Edward Lampert and his hedge fund were sued by Sears Holdings Corp., which asserts that they wrongly siphoned $2 billion in assets from the company as it headed for bankruptcy.


WHO IS EDWARD LAMPERT?

Billionaire investor and former Sears chairman and CEO Edward “Eddie” Lampert, 56, seemingly had a golden touch before presiding over the storied retailer’s descent into bankruptcy.

A Yale graduate whose college roommates included future U.S. Treasury Secretary Steven Mnuchin, Lampert cut his teeth at Goldman Sachs and started his successful hedge fund, ESL, while still in his 20s. In 2003, he took control of a bankrupt Kmart and made it profitable — until he combined it with Sears two years later in an $11 billion deal that eventually sunk both retailers.

But Lampert has had to overcome more than just the tumultuous attempt to turn around Sears, surviving the early death of his father, the arrest of his first boss and a fortunately bungled kidnapping.

Father’s death

The son of a lawyer and a stay-at-home mom, Lampert grew up in relative affluence on the North Shore of Long Island. But everything changed at age 14, when his father died of a heart attack, putting the family’s finances on shaky ground. Lampert’s mother went to work as a sales clerk and he pitched in with summer jobs.

Lampert attended Yale on financial aid, where his roommates included Mnuchin, whose father was a senior partner at Goldman Sachs. Lampert landed an internship at Goldman before his senior year and a full-time gig after graduation.

Goldman Sachs

Lampert worked in the risk arbitrage department at the investment firm for four years, where colleagues included former U.S. Treasury Secretary Robert Rubin. He reportedly made the decision to strike out on his own after the 1987 arrest of Robert Freeman, head of stock arbitrage at Goldman, on insider trading charges.

Launching ESL

In 1988, Lampert started his own hedge fund, ESL Investments, with financial backing from former Goldman Sachs bigwig Richard Rainwater. His strategy was long-term investing for the well-heeled, with a minimum investment of $10 million for five years. Investors included David Geffen, Michael Dell and Mnuchin, among others.

Big investing wins

Lampert’s investing acumen scored some big wins at ESL, including large stakes in auto parts retailer AutoZone and car dealership AutoNation, that helped the firm achieve annual returns north of 20 percent for years. ESL took a similarly large stake in Kmart, guiding it out of Chapter 11 bankruptcy in 2003 and turning annual profits that only burnished Lampert’s reputation as a savvy investor in retail.

Bungled kidnapping

In January 2003, as Lampert was working on Kmart’s reorganization plan, he was forced into the backseat of a Ford SUV at the garage of his Greenwich, Conn., office building by four men, who held him hostage at a motel for 28 hours. The kidnappers brandished a shotgun, used Lampert’s credit card to buy pizza and attempted to negotiate the terms of his release. They freed Lampert after he agreed to pay a $5 million ransom. He never paid a cent and all four men were arrested within days.

Sears downfall

Despite all the investment wins, Lampert is perhaps best known for overseeing the inexorable demise of Sears. In 2005, his discount retailer, Kmart, acquired Sears in an $11 billion deal that formed what Lampert hoped would be a formidable rival to Walmart. Instead, the Great Recession hit, the age of Amazon dawned and Sears Holdings Corp. saw years of revenue declines and mounting losses before filing for bankruptcy in October.

CHICAGO — Sears Holdings Corp. has filed a lawsuit against its former chairman and CEO, Edward Lampert, and his hedge fund, claiming they wrongly siphoned $2 billion in assets from the company as it headed for bankruptcy.

“Had defendants not taken these illegal and improper actions, 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,” lawyers for company wrote in a court filing.

The lawsuit was filed by the team winding down what remains of Sears’ business after Lampert purchased the majority of its remaining assets in a bankruptcy auction and earlier this year and formed a new company out of those assets. The complaint, filed Wednesday in the U.S. Bankruptcy Court in the Southern District of New York, seeks to recover the property that was allegedly fraudulently transferred.

The lawsuit also names former Sears directors and ESL executives and directors including U.S. Treasury Secretary Steven Mnuchin, a former investor and executive at ESL, and Kunal Kamlani, president of ESL and a former Sears director, as defendants, as well as Sears shareholder Fairholme Capital Management and its founder Bruce Berkowitz.

Representatives for Lampert and ESL could not immediately be reached for comment. Fairholme said it is in the process of reviewing the filings.

The lawsuit claims Lampert directed employees to produce “fanciful, bad-faith” financial projections while designing transactions that allegedly unfairly benefited Lampert, ESL and other defendants. Those transactions involved Orchard Supply Hardware Stores, Sears Hometown and Outlet Stores, Sears Canada, Lands’ End and Sears’ real estate investment trust spinoff, Seritage Growth Properties.

ESL has said all its deals with Sears had the approval of the company’s board. But the committee tasked with overseeing transactions involving potential conflicts of interests failed to protect Sears and its creditors, attorneys said in the lawsuit.

Lawyers for Sears claimed the 2015 spinoff of 266 of Sears’ best-performing stores into Seritage Growth Properties was designed to benefit Seritage at Sears’ expense. The real estate was undervalued by at least $649 million, according to the lawsuit, and terms allowing Sears to lease back space were unfair to the retailer, according to the complaint.

The terms ensured “that Sears would continue to pay Seritage rent, even for unprofitable stores, and that Seritage could invest those funds in redevelopments that ousted Sears from its most profitable stores,” attorneys said in the complaint.

Lampert is both an investor in Seritage and its chairman.

Lampert’s and ESL’s initial attempts to buy the retailer out of bankruptcy sought to guarantee they would not be held liable for controversial transactions the hedge fund made with Sears. Following opposition from a committee of unsecured creditors, ESL’s successful $5.2 billion bid dropped that requirement.

Sears also filed a proposed restructuring plan with the bankruptcy court Wednesday that would wind down the retailer’s remaining assets following its $5.2 billion sale to Lampert and ESL.

Those assets would include proceeds from any lawsuits related to the transactions highlighted in the complaint or other intentional misconduct by ESL, according to the plan filed with the bankruptcy court. A hearing on the wind-down plan has been scheduled for May 16.

Edward Lampert and his hedge fund were sued by Sears Holdings Corp., which asserts that they wrongly siphoned $2 billion in assets from the company as it headed for bankruptcy.
https://www.limaohio.com/wp-content/uploads/sites/54/2019/04/web1_BIZ-SEARS-CEO-LAWSUIT-TB.jpgEdward Lampert and his hedge fund were sued by Sears Holdings Corp., which asserts that they wrongly siphoned $2 billion in assets from the company as it headed for bankruptcy.
Company says Lampert stripped $2 billion in assets from bankrupt company

By Lauren Zumbach

Chicago Tribune

WHO IS EDWARD LAMPERT?

Billionaire investor and former Sears chairman and CEO Edward “Eddie” Lampert, 56, seemingly had a golden touch before presiding over the storied retailer’s descent into bankruptcy.

A Yale graduate whose college roommates included future U.S. Treasury Secretary Steven Mnuchin, Lampert cut his teeth at Goldman Sachs and started his successful hedge fund, ESL, while still in his 20s. In 2003, he took control of a bankrupt Kmart and made it profitable — until he combined it with Sears two years later in an $11 billion deal that eventually sunk both retailers.

But Lampert has had to overcome more than just the tumultuous attempt to turn around Sears, surviving the early death of his father, the arrest of his first boss and a fortunately bungled kidnapping.

Father’s death

The son of a lawyer and a stay-at-home mom, Lampert grew up in relative affluence on the North Shore of Long Island. But everything changed at age 14, when his father died of a heart attack, putting the family’s finances on shaky ground. Lampert’s mother went to work as a sales clerk and he pitched in with summer jobs.

Lampert attended Yale on financial aid, where his roommates included Mnuchin, whose father was a senior partner at Goldman Sachs. Lampert landed an internship at Goldman before his senior year and a full-time gig after graduation.

Goldman Sachs

Lampert worked in the risk arbitrage department at the investment firm for four years, where colleagues included former U.S. Treasury Secretary Robert Rubin. He reportedly made the decision to strike out on his own after the 1987 arrest of Robert Freeman, head of stock arbitrage at Goldman, on insider trading charges.

Launching ESL

In 1988, Lampert started his own hedge fund, ESL Investments, with financial backing from former Goldman Sachs bigwig Richard Rainwater. His strategy was long-term investing for the well-heeled, with a minimum investment of $10 million for five years. Investors included David Geffen, Michael Dell and Mnuchin, among others.

Big investing wins

Lampert’s investing acumen scored some big wins at ESL, including large stakes in auto parts retailer AutoZone and car dealership AutoNation, that helped the firm achieve annual returns north of 20 percent for years. ESL took a similarly large stake in Kmart, guiding it out of Chapter 11 bankruptcy in 2003 and turning annual profits that only burnished Lampert’s reputation as a savvy investor in retail.

Bungled kidnapping

In January 2003, as Lampert was working on Kmart’s reorganization plan, he was forced into the backseat of a Ford SUV at the garage of his Greenwich, Conn., office building by four men, who held him hostage at a motel for 28 hours. The kidnappers brandished a shotgun, used Lampert’s credit card to buy pizza and attempted to negotiate the terms of his release. They freed Lampert after he agreed to pay a $5 million ransom. He never paid a cent and all four men were arrested within days.

Sears downfall

Despite all the investment wins, Lampert is perhaps best known for overseeing the inexorable demise of Sears. In 2005, his discount retailer, Kmart, acquired Sears in an $11 billion deal that formed what Lampert hoped would be a formidable rival to Walmart. Instead, the Great Recession hit, the age of Amazon dawned and Sears Holdings Corp. saw years of revenue declines and mounting losses before filing for bankruptcy in October.

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