A federal judge on Thursday ordered former Kmart chief executive officer Charles Conaway to forfeit more than $10 million for deceiving shareholders, but stopped short of banning him from future front-office jobs altogether.
In June, a jury found that Conaway had misled investors in the run-up to the retailer’s 2002 bankruptcy. The verdict came after a civil trial in U.S. District Court in Ann Arbor, Mich., over a 2005 Securities and Exchange Commission lawsuit.
In his opinion on remedies in the case, U.S. Magistrate Judge Steven D. Pepe ordered that Conaway repay a $5 million retention loan Kmart gave him and eventually forgave, $2.6 million in interest and a $2.5 million civil penalty. Pepe ruled against an SEC motion that sought to prohibit Conaway from working as an executive at a public firm.
“I was considering a 10-year injunction or bar from the time of the offense,” Pepe wrote in his 70-page ruling. “Yet, in reality I cannot find that there is a realistic likelihood that Mr. Conaway in the short term will be hired to serve as an officer or director of a publicly traded corporation given the serious damage to his reputation this case and the jury’s findings have caused him.”
Conaway’s attorney, Scott Lassar, said Thursday he was “very disappointed” by the ruling and noted an arbitration panel had exonerated his client before the SEC filed suit.
“Mr. Conaway did not get a dime from Kmart that he did not deserve,” Lassar said. He plans to appeal both Pepe’s opinion and the jury’s verdict to the U.S. Court of Appeals’ Sixth Circuit.
The SEC’s initial complaint accused Conaway of misrepresenting the company’s liquidity in its 2001 third-quarter report and conference call. The agency alleged Kmart had overbought inventory the previous summer and then delayed payments to vendors in order to stay above water, essentially borrowing $570 million. The SEC held Conaway did not properly disclose the inventory issues, lied about the reasons for the late payments and misrepresented Kmart’s relationship with suppliers.
Pepe found Conaway had given false testimony under oath but at the same time wrote the violation at the center of the case was “an isolated incident on a single day involving various deceptions and critical omissions, but all related to a single wrongful course of conduct.”
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