The company that formerly owned Sears and Kmart has sued its ex-CEO, chairman and investor Eddie Lampert and his hedge fund over accusations that they illegally stripped the retailer of assets in the years leading up to its Chapter 11 bankruptcy.
Lampert faces accusations that while he was leading the company, he directed the transfer of billions of dollars in assets "for grossly inadequate consideration or no consideration at all" for the benefit of himself, his hedge fund ESL Investments and others.
The lawsuit, filed by Sears Holdings, targets about two dozen defendants, including Treasury Secretary Steven Mnuchin, who was previously an investor and board member of ESL and has been friends with Lampert for decades.
Lampert, in February, struck a last-minute deal to buy Sears assets out of bankruptcy and keep about 400 stores open under a new entity called Transform Holdco.
But the company that sold the assets to him – Sears Holdings – is still trying to deal with angry creditors who say that Lampert exploited them and profited from the retailer's descent.
ESL said in a statement that it "vigorously disputes" the lawsuit, calling them "baseless allegations and fanciful claims" that "are misleading or just flat wrong."
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Sears Holdings, of which Lampert was formerly CEO, chairman and the largest investor, alleged that Lampert's moves "were unmistakably intended to hinder, delay and defraud creditors and/or occurred when the Company was insolvent and had insufficient capital to continue its operations and to repay its billions of dollars in debt."
Had those things not occurred, "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," the lawsuit alleges.
The suit also alleges that Lampert "knew the Company had no plan to return to profitability" and worked "to create a false record to cover up their asset stripping, at Lampert’s personal direction," including "bad-faith predictions" of a "dramatic turn-around."
ESL said that under Lampert's leadership, Sears used more than $2 billion in proceeds from asset sales to reduce the retailer's debt and fund its operations. The hedge fund said it did not receive favorable treatment, adding that the Sears board and independent directors authorized the deals in question.
"We are confident that the processes we followed for each of these transactions are unimpeachable," ESL said.
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It was not immediately clear whether the lawsuit could disrupt the operations of the so-called New Sears.
A representative of Transform Holdco was not immediately available. The Treasury Department's press office did not immediately respond to a request for comment..
Lampert came under fire over the past several years for his leadership, such a 2015 decision to sell certain valuable stores to a real estate investment trust called Seritage Growth Properties, where he had a significant ownership stake. Seritage is also targeted in the lawsuit.
Lampert also faced scrutiny for loading Sears up with debt from his hedge fund.
USA TODAY reported in June 2018 that Lampert and ESL were collecting at least $200 million annually in debt payments from Sears and that Lampert had personally directed the company not to reinvest in major store upgrades.
Sears closed more than 3,500 stores and cut about 250,000 jobs in roughly the last 15 years as sales cratered, leading to the company's Chapter 11 bankruptcy filing in October.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
This article originally appeared on USA TODAY: Former Sears company sues ex-CEO Lampert, Treasury's Steven Mnuchin over 'asset stripping'