By  on June 3, 2009

A lawyer for Charles Conaway, Kmart’s former chief executive officer, said Tuesday his client would appeal a verdict finding him liable for fraud charges brought by the Securities and Exchange Commission in a three-week-long civil trial.

On Monday, a jury in U.S. District Court in Ann Arbor, Mich., found that Conaway had misled investors when he served as ceo in the months leading up to the company’s January 2002 bankruptcy filing.

Conaway’s attorney, Scott Lassar, said Tuesday his client plans to appeal the jury’s decision.

“Mr. Conaway had been exonerated by a three-judge arbitration panel brought by creditors in the Kmart bankruptcy and we were hoping this jury would exonerate as well,” Lassar said.

The SEC is seeking an order prohibiting Conaway from serving as an officer at publicly traded companies as well as civil fines. The judge overseeing the case has not yet determined penalties.

In the SEC’s initial complaint, filed in 2005, authorities accused Conaway of misrepresenting the company’s balance sheet in its third-quarter earnings report and conference call in fall 2001. The previous summer the company had overbought $850 million in inventory and dealt with ensuing liquidity issues by slowing payments to vendors, the agency alleged.

According to the complaint, Kmart had essentially borrowed $570 million from its vendors by the end of the third quarter. The SEC alleged Conaway did not properly disclose the inventory problems, lied about the reasons for the late payments and misrepresented Kmart’s relationship with its manufacturers.

Conaway’s co-defendant, former chief financial officer John McDonald, settled shortly before the trial’s start. He agreed to pay $120,000 in penalties, observe a five-year ban from working as an officer at public companies and other restrictions. McDonald did not admit or deny the allegations as part of the deal.

Conaway took the reins of Kmart in 2000 and left in March 2002. The company emerged from Chapter 11 in 2003 as Kmart Holding Corp., which merged with Sears the following year and became part of Sears Holdings Corp.

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