The Securities and Exchange Commission has asked a judge to impose a $22.6 million judgment on former Kmart chief executive officer Charles Conaway after he was found liable on fraud charges earlier this year.
In a June 1 verdict, a jury in U.S. District Court in Ann Arbor, Mich., found that Conaway and his executive team had concealed the true financial state of Kmart from its shareholders prior to the firm’s bankruptcy in 2002.
The SEC submitted its recommendation for remedies in the civil case on July 30. In the memo, the agency asked Magistrate Judge Steven Pepe to order Conaway to return $8.9 million in compensation he received from the retailer, pay $4.8 million more in interest and another $8.9 million in civil fines.
SEC lawyers wrote that Conaway would not have been compensated as well had he not misled investors.
“If Conaway’s fraud was richly rewarding for him, it was devastating for Kmart, its employees and its shareholders,” government attorneys wrote in the memo. “Even if the fraud may not have caused Kmart’s bankruptcy, there is ample evidence that the fraud contributed to it.”
The agency also is seeking an order that bars Conaway from serving as an officer at publicly held companies.
Conaway’s lawyers have filed a motion for a new trial and new verdict in the ex-ceo’s favor.
Attorney Scott Lassar said Monday that his client had not profited improperly and that the SEC had used a retention loan as the basis of its calculations.
“The actions Conaway took were in the best interest of Kmart and its shareholders and he didn’t receive a penny from those actions,” Lassar said.
The SEC first filed its civil suit against Conaway in August 2005. The suit alleged Conaway and his leadership team overbought inventory in the summer of 2001, slowed payments to vendors and failed to disclose the situation to investors on Kmart’s third-quarter conference call.
Conaway’s co-defendant in the civil case, ex-chief financial officer John McDonald, settled with the SEC earlier this year. He agreed to pay $120,000 in penalties.
Kmart filed for Chapter 11 protection in January 2002. It emerged in 2003 as Kmart Holding Corp. and merged with Sears in 2004 to become part of Sears Holdings Corp., owned by private equity investor Edward Lampert’s ESL Investments.
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