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Kmart Grand Jury To Probe Salaries Of Former Execs

NEW YORK — The federal grand jury looking into Kmart Corp.’s bankruptcy is expected to focus on the compensation agreements granted to the company’s former management team.<br><br>The U.S. Attorney’s Office’s impanelment...

NEW YORK — The federal grand jury looking into Kmart Corp.’s bankruptcy is expected to focus on the compensation agreements granted to the company’s former management team.

The U.S. Attorney’s Office’s impanelment of a grand jury in Detroit to probe the Kmart bankruptcy adds to the scrutiny already being applied by the retailer’s internal investigation and the Securities and Exchange Commission, with the assistance of the Federal Bureau of Investigation.

FBI special agent Dawn Clenney declined comment on the matter. The U.S. Attorney’s office in Detroit also declined comment.

Investigators, sources said, are intensifying their probe on the compensation deals negotiated by former chairman and chief executive officer Chuck Conaway and former president Mark Schwartz. At least 20 subpoenas reportedly have been issued to potential witnesses so far.

According to SEC filings, Conaway received over $22 million in compensation during his 22-month tenure at Kmart. Schwartz pulled in less than that, the equivalent of $675,000 a month for a total of $10.8 million over the course of 16 months. Both also received retention loans from the bankrupt chain, $5 million for Conaway and $3 million for Schwartz.

As reported, Kmart’s board is conducting an internal probe into various accounting issues and the firm’s stewardship under its former management team. The sequence of events at the mass discounter began upon the receipt of an anonymous letter in January from individuals purporting to be Kmart employees.

James Adamson, who replaced Conaway as Kmart’s chairman and ceo, in public statements and in interviews with WWD, has said that the retailer is cooperating fully with government probes.

In addition, a U.S. House subcommittee is also in the picture, accessing documents and reviewing evidence in the case.

The grand jury is expected to need as long as six months to adequately look into the compensation deals and bankruptcy.

New York State Attorney General Eliot Spitzer is investigating the legality of stock options and other forms of executive compensation, particularly those granted to executives at bankrupt companies. His office declined comment on the status of the investigations.

In June three former executives of Rite Aid, including former chairman and ceo Martin Grass, were the targets of a 37-count indictment on charges of masterminding an accounting scheme that overstated income by $1.6 billion. The three have pled not guilty to the charges.

Also in June, Dennis Kozlowski, former ceo of Tyco International, was indicted by the Manhattan district attorney’s office for scheming to avoid $1 million in sales tax concerning artwork that he purchased. Last month, The CIT Group was spun off from its parent Tyco in an initial public offering. CIT is a global commercial finance firm considered to be the biggest player in the area of factoring, an often-used source of capital for the fashion industry. None of the management team at CIT is involved in the Tyco probe.

Congressional leaders are also seeking information from domestic diva Martha Stewart, who has one of her lines sold at Kmart, about whether her sale of ImClone Systems stock constituted insider trading. Stewart’s good friend Samuel Waksal, ImClone’s founder and former ceo, pled not guilty on Monday to charges of insider trading, obstruction of justice, bank fraud and perjury. He was indicted by a federal grand jury in Manhattan earlier this month.