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Sears' unsecured creditors say downfall was caused 'by years of misconduct,' object to Lampert deal

CNBC logo CNBC 1/18/2019 Lauren Hirsch
Edward Lampert wearing a suit and tie: Edward Lampert speaks during a news conference to announce the merger of Kmart and Sears in New York Wednesday, Nov. 17, 2004.© Provided by CNBC LLC Edward Lampert speaks during a news conference to announce the merger of Kmart and Sears in New York Wednesday, Nov. 17, 2004.

Sears' unsecured creditors filed an objection Thursday afternoon to Chairman Eddie Lampert's deal to save the company through his hedge fund, ESL Investments.

In documents filed with with Southern District of New York Bankruptcy Court, the committee said it has uncovered facts that demonstrate Sears' downfall was "precipitated by years of misconduct by Lampert, ESL, and others against Sears and its creditors," in addition to the broader challenges facing the retail industry.

Lampert reached a deal with Sears early Wednesday morning to acquire 425 Sears stores and other assets for about $5.2 billion. Sears' other brands include its Home Services business and Kenmore and DieHard brands.

Lampert, Sears' biggest creditor, has been under fire from the company's unsecured creditors since it filed for bankruptcy in October. The group has said there may be claims against Lampert for deals the company did while he was Sears' CEO and largest shareholder. Those deals include Sears' spinoff of Lands' End in 2014 and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through some Sears' properties a year later.

"Sears's downfall is nothing short of tragic," the committee wrote in the documents.

"After taking control of Sears in 2005, ESL — acting at all times at founder and namesake Lampert's direction — engaged in serial asset stripping, taking Sears's best assets out of the enterprise to shield them from the claims of other creditors and maximize ESL's investments (in Sears and other entities) in anticipation of these inevitable bankruptcy proceedings."

The bankruptcy judge overseeing the case, Judge Robert Drain, will need to assess the merits of any objections at a hearing set for Feb. 1 at the bankruptcy court in White Plains, New York.


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