The SEC today filed a civil lawsuit accusing former Kmart Corp. executives Charles C. Conaway and John T. McDonald of misleading investors about the company's financial condition in the months before its Jan. 22, 2002, bankruptcy filing.
The lawsuit, filed in the U.S. District Court for the Eastern District of Michigan, charged Mr. Conaway, the Troy, Mich., retailer's former CEO, and Mr. McDonald, former CFO, with deliberately lying about an $850 million pileup of excess inventory that tied up the company's cash. The statements were made in the company's quarterly earnings report for the third quarter 2001 and in an earnings telephone call with securities analysts and investors.
"Kmart's senior management failed to honestly inform investors that Kmart faced a liquidity crisis in the third quarter of 2001, how the company's own ill-advised action had caused the problem and what steps management took to respond to it," said Peter H. Bresnan, an associate director in the SEC's enforcement division.
Chris Braithwaite, spokesman for Sears Holding Corp., which acquired Kmart earlier this year, declined to comment.