Detroit The Securities and Exchange Commission on Tuesday accused two former Kmart executives with misleading investors about the company's financial condition before the retailer's bankruptcy filing in early 2002.
The civil charges filed in U.S. District Court in Detroit allege that former chairman and CEO Charles Conaway and former Chief Financial Officer John McDonald were responsible for disclosures that were "materially false and misleading."
The SEC's complaint charges Conaway and McDonald with securities fraud and aiding and abetting securities fraud. It also accuses them of aiding and abetting violations of rules that require publicly traded companies to file quarterly reports and to include material information in the reports so they are not misleading.
"Investors are entitled to both accurate financial data and an accurate description of the story behind the numbers," said Peter Bresnan, an associate director in the SEC's Enforcement Division.
Conaway's lawyer, Scott Lassar, said in a statement that Conaway was disappointed by the action and expected to be exonerated. "Mr. Conaway acted at all times in good faith and in the best interest of Kmart," the statement said.
Contact information for McDonald was not immediately available.
The disclosures in question were part of regulatory filings Kmart made for the third quarter and nine months ended Oct. 31, 2001, and in an earnings conference call with analysts and investors, the SEC said.
Kmart filed for bankruptcy Jan. 22, 2002, leading to the closing of about 600 stores, termination of 57,000 Kmart employees and cancellation of company stock. The Troy, Mich.-based retailer acquired Sears, Roebuck & Co. in March. The new company, called Sears Holdings Corp., is based in Hoffman Estates, Ill. The former Kmart distribution center in Lawrence continues to operate for the new company and has about 500 employees.
Spokesman Stephen Pagnani said the company would have no comment on the charges.