Sears Creditors Take Steps to Sue Chairman for Retailer’s Demise

The unsecured creditors of Sears Holdings Corp. are exploring a potential lawsuit against chairman and ex-CEO Eddie Lampert, whom they claim “worked hard to conceal” an “intricate scheme” to strip the now-bankrupt retailer of its assets and lead the company to its ultimate demise.

On Wednesday, the committee filed a motion with the U.S. Bankruptcy Court of the Southern District of New York, seeking permission to sue Lampert and his hedge fund, ESL Investments Inc., which took control of the company in 2005. The document, which totals 574 pages, noted that the billionaire executive presided over the closure of 3,500 stores, cut about 250,000 jobs and lost “untold billions” in value.

“The Creditors’ Committee has uncovered facts demonstrating that Sears’s downfall — while, like the financial struggles of other big box retailers, was caused in part by the Internet age and other factors beyond Sears’s control — was also precipitated by years of misconduct by Lampert and ESL,” the filing read.

It added: “By accepting ESL’s bid to acquire Sears, made with a credit bid of disputed claims, the Debtors have capitulated to Lampert’s and ESL’s efforts to steal the remaining assets of Sears. This is the final step of a multi-year and multi-faceted scheme — one made possible by the Debtors, which are led by Board members that were handpicked by and are beholden to Lampert and ESL.”

Last week, Lampert won a bankruptcy auction to keep the beleaguered department store chain alive. His takeover bid of more than $5.2 billion would prevent the 126-year-old business from liquidating its assets, retain up to 45,000 employees and keep 425 stores across the United States operating.

Lampert is also Sears’ largest investor, with ESL loaning the company upwards of $2.4 billion in financing over the last several years. Through the motion, the creditors hope that a federal judge would advise Sears to liquidate instead of accepting the restructuring offer, which is scheduled for a hearing on Feb. 1.

“Sears’ downfall is nothing short of tragic,” the filing added. “In effect, Lampert and ESL managed Sears as if it were a private portfolio company that existed solely to provide the greatest returns on their investment, recklessly disregarding the damage to Sears, its employees and its creditors.”

In response, a spokesperson for ESL said: “ESL Investments Inc. vigorously disputes the claims in the Unsecured Creditors’ Committee’s most recent attack on ESL, Mr. Lampert and Mr. [Kunal] Kamlani [ESL president]. The UCC’s statements are misleading or just flat wrong… We reject the UCC’s assertions and will vigorously contest their claims concerning these transactions.”

Once a dominant force in retail, Sears filed for Chapter 11 bankruptcy protection on Oct. 15. It joined a number of high-profile victims, including Toys ‘R’ Us and Bon-Ton, at a time when brick-and-mortar mainstays continue to shrink their physical footprints and invest more resources in e-commerce.

This story was updated to reflect comments from an ESL spokesperson.

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