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By Jonathan Stempel and Jessica DiNapoli
NEW YORK (Reuters) – Sears Holdings Corp sued Eddie Lampert, its chairman, its hedge fund, ESL Investments, and others, like Treasury Secretary Steven Mnuchin, claiming that they had illegally siphoned Billion dollars of assets at the retailer before it goes bankrupt.
The lawsuit, released Thursday, was filed by the restructuring team that liquidated Sears' estate and sued on behalf of creditors, many of whom accuse Lampert of being responsible for the retailer's downfall.
It followed the billionaire's $ 5.2 billion purchase in February of most Sears assets, including the DieHard and Kenmore brands, following an auction.
The lawsuit demands repayment of "billions of dollars stolen from Sears", including what Lampert would later call a "spiral of death": she sold her main assets to meet her daily expenses without a real plan of profitability .
"If the defendants had not taken these inappropriate and illegal measures, Sears would have had billions of dollars more to pay its third-party creditors today and would not have suffered the amount of disruption, of spending and job losses resulting from his recent bankruptcy filing, "the complaint said.
Sears filed for Chapter 11 protection in October after a protracted decline in Lampert, marked by heavy losses, underinvestment and loss of market share for retailers such as Walmart Inc., Home Depot Inc. and Amazon .com Inc.
Others prosecuted include Kunal Kamlani, president of ESL; Bruce Berkowitz and his Fairholme Capital Management, a major Sears shareholder; and Seritage Growth Properties, which acquired more than 266 of the best Sears stores in 2015.
Mnuchin, a roommate at Lampert at Yale University, has been a director of Sears and ESL and has previously worked with Lampert at Goldman Sachs.
In a statement on behalf of ESL, Lampert and Kalmani, ESL stated that it vigorously disputed the lawsuit, calling the allegations "deceptive or simply false", and asserting that all transactions had been made from in good faith and in the interest of the shareholders.
Fairholme stated that he was reviewing the complaint. Seritage and the Treasury Department did not immediately respond to requests for comment.
& # 39; SPIRAL DEATH & # 39;
Lampert created Sears Holdings at the 2005 merger of Sears, Roebuck & Co and Kmart Holdings Corp.
According to the complaint, Lampert and other insiders had begun in 2011 to develop a plan to "strip" Sears of their assets, the performance of the Hoffman Estates-based retailer, in Illinois having fallen behind and more and more ESL investors demanding their money.
According to the complaint, Lampert had ordered the creation of false financial plans providing for a turnaround of Sears and used them to transfer five major assets worth more than $ 2 billion, including Land's End and Sears Hometown Outlet.
The bankruptcy of Sears, in particular, has blamed the conduct of Lampert and others in the $ 258 billion case that Seritage is pursuing.
This transaction has underestimated at least $ 649 million the price of real estate, blocking Sears with hundreds of millions of dollars in rent and royalties from renting most of the 266 stores, and structured so to benefit preferred shareholders such as Lampert, notably through the payment of Seritage des dividendes.
Seritage announced an amount of $ 24.1 million from operations in 2018, a measure of cash flow, and secured a $ 2 billion loan from Berkshire Hathaway Inc. of Warren Buffett, Berkshire, who is not a defendant.
Thursday's lawsuit was filed in the US Bankruptcy Court in White Plains, NY.
She claims that the alleged looting constitutes "fraudulent transfers" that should be undone or, more likely, justified damages.
The reorganization of Sears is expected to be approximately 425 Sears and Kmart stores, compared to approximately 3,500 at the time of the 2005 merger.
The case is Sears Holdings Corp. et al. Lampert et al., US Bankruptcy Court, Southern District of New York, No. 19-ap-08250. The main bankruptcy case is In re Sears Holdings Corp., which is part of the same court, 18-bk-23538.
(Report by Jonathan Stempel in New York, edited by Steve Orlofsky and Marguerita Choy)
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