Judge Rings Up Former Kmart CEO For $10M

There will be no Blue Light Special discount for former Kmart chief executive Charles Conaway, who was ordered Thursday to cough up more than $10 million for misleading statements he allegedly made to investors in the months before the retailer filed for Chapter 11 protection in 2002.

In a 70-page decision, U.S. Magistrate Judge Steven Pepe required Conaway to repay a $5 million loan he received from the company, plus interest and fines, the Associated Press reported. Last year, a jury found Conaway liable in a federal civil trial.

The Securities and Exchange Commission said Conaway hid Kmart’s crumbling finances by failing to tell investors that the retailer was delaying payments to suppliers in order to stock pile cash.

The charges mainly stemmed from Conaway’s call with Wall Street analysts in November 2001 and the company’s quarterly filing with regulators.

In that call, Conaway reported sliding sales but did not disclose the changed vendor payment policy or an ill-timed purchase of $800 million in merchandise. In court, Conaway said that it never crossed his mind that he was withholding critical information.

Investors’ negative reaction to the quarterly report “would have been significantly worse” had Conaway made disclosures about “the magnitude of the liquidity crisis including its extensive slow-pay systems,” the judge wrote.

Pepe denied the SEC’s request to bar Conway from serving as an officer at another public company, saying the fines and damage to his reputation were deterrent enough from committing future violations.

Conway was forced out of Kmart as the company emerged from bankruptcy protection in 2003 under the control of investor Edward Lampert. The following year Kmart merged with Sears, Roebuck and Co., creating Sears Holdings Corp.

http://blogs.wsj.com/bankruptcy/2010/02/25/judge-rings-up-former-kmart-ceo-for-10m/