By  on February 25, 2002

NEW YORK -- A shareholder lawsuit seeking class-action status was filed last week in a Detroit federal district court against Charles Conaway, Kmart's chief executive officer, for alleged securities law violations.

The lawsuit, which seeks unspecified compensatory damages, was filed by D.E. & J. Ltd. Partnership on behalf of all shareholders who bought shares of Kmart stock between May 17, 2001 and Jan. 22, 2002, the same day the discounter filed for Chapter 11 bankruptcy court protection. Court papers said that Kmart is not a named defendant because it is in bankruptcy proceedings,

The lawsuit alleged that Conaway participated in a "fraudulent scheme" by disseminating "materially false and misleading statements and/or concealing material adverse facts," and said that the alleged concealment resulted in shareholders buying company stock at "artificially inflated prices."

Milberg Weiss Bershad Hynes & Lerach is lead counsel for the shareholder, with the law firms of Cauley Geller Bowman & Coates and Schiffrin & Barroway as co-counsels.

A Kmart spokesman said, "Our general policy is that we don't comment on matters in litigation."

In a separate development, Kmart's new ad campaign, directed by Spike Lee, raised eyebrows even before its Sunday debut at the closing ceremonies for the Winter Olympics. While the campaign's cost -- a reported $40 million -- appears to be an enormous sum for a bankrupt company, financial and brand marketing advisers agreed that Kmart needs to drive traffic into the stores. One credit source said that the amount was approved before the company filed for Chapter 11.

The new campaign is institutional in nature, focusing on more traditional values, such as putting family first.

Paul Griswold, ceo of Paxar Corp., a provider of merchandising and inventory management systems to retailers, said, "Many suppliers have lost confidence in Kmart. The focus of the campaign suggests to me that they are no longer targeting Wal-Mart, but the specialty and department store customers. If they can build on that, cull down their number of suppliers and reestablish strong relationships with key vendors going forward, the supply chain problems should fall into place."

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