Why Sears Holdings Is Suing Eddie Lampert After He Saved The Retailer

Sears Eddie Lampert Resigns — Eddie Lampert has resigned as Sears chairman of the board, effective immediately. A Sears sign is displayed at a store on October 15, 2018 in the Brooklyn borough of New York City. The iconic American retailer has filed for Chapter 11 protection from creditors early on Monday, listing more than $10 billion in debts and more than $1 billion in assets. Getty Images/Spencer Platt

Sears Holdings has filed a lawsuit against Eddie Lampert and his hedge fund, ESL Investments. In the lawsuit, Sears claims that Lampert and ESL illegally stripped the company of its assets in the two years leading up to its Chapter 11 bankruptcy, keeping the money out of the hands of the creditors that were owed.

The company, which formerly owned Sears and Kmart, claims that while Lampert was CEO, he illegally transferred $2 billion dollars in assets for his benefit and the benefit of ESL as well as others. In the case, Sears Holdings is asking that these actions be deemed fraudulent and maintains that the creditors should be paid.

ESL said in a statement that it “vigorously disputes” the lawsuit. The hedge fund claims that the accusations made against it are “baseless allegations and fanciful claims” that “are misleading or just flat wrong.”

After the purchase of Sears Holding, the company has had to face the aftermath of unpaid creditors, who claim that Lampert used the company’s failures to his advantage. A total of 12 defendants were named in the suit.

In the suit, Sears Holdings claims that Lambert “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.”

The complaint goes on to say that “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.”

Sears Holding also contends that Lampert had no intention of returning the company to “profitability” and engaged in “bad-faith predications” of a “dramatic turn-around.” During Lampert’s run as CEO, he closed more than 3,500 stores and shuttered 250,000 employees.

Sears filed for bankruptcy in October and emerged from liquidation in February through a $5.2 billion deal made by Lampert and ESL. The company is now operating as Transform Holdco.