The U.S. Securities and Exchange Commission is seeking more than $22 million from the former CEO of Kmart Corp., Charles Conaway, for “intentionally lying” to Wall Street and concealing information from Kmart directors prior to its bankruptcy filing in 2002.
The SEC had accused Conaway of failing to disclose that Kmart was delaying payments to suppliers to save cash in late 2001. In June, a federal jury in Ann Arbor, Mich., ruled in favor of the government.
In a motion filed in the U.S. District Court for the Eastern District of Michigan on Thursday, SEC lawyer Alan Lieberman wrote, “Even if the fraud may not have caused Kmart's bankruptcy, there is ample evidence that the fraud contributed to it. And there is no question that the fraud prevented investors from anticipating the filing and avoiding the loss of their investments.”
The SEC is looking for Conaway to pay back a $5 million loan to Conaway that Kmart forgave when he departed in March 2002 and also the $3.88 million in tax liabilities associated with it. The loan would not have been forgiven if Kmart's board knew he was hiding information, Lieberman said. In addition, the SEC wants a $8.8 million fine. Together, it all adds up to $22.56 million. The SEC also wants Conaway barred from serving as an officer or director at a publicly traded company.
A lawyer for Conaway told the Associated Press on Monday that Conaway acted properly.
“There should be no disgorgement because there are no ill-gotten gains,” said the lawyer Scott Lassar. “What Chuck did in delaying payments to vendors was in the best interests of Kmart and its shareholders,” he said. “There was no loss to anyone from Chuck's activity. The bankruptcy was caused by factors completely unrelated to the events of fall 2001.”
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