NEW YORK — The unsecured creditors committee of Montgomery Ward last week filed a lawsuit against General Electric Capital Corp. and certain affiliates for at least $500 million in damages, alleging that GE “intentionally misled creditors.”
The lawsuit, filed on Jan. 18 in Delaware bankruptcy court, where Ward’s filed for Chapter 11, is also seeking $500 million as a restitution claim. The complaint charged that GE Capital “manipulated Ward’s financial structure and the timing of Ward’s second bankruptcy filing to benefit their own credit card and marketing businesses” and maximize for itself certain tax advantages.
The lawsuit charged that Ward’s creditors were “duped into extending hundreds of millions of dollars in unsecured credit to the debtors,” and that GE Capital made millions in loans to Ward’s secured by the retailer’s real estate, creating a fiction that GE Capital was supporting Ward’s. The lawsuit said that the effect of the loans was to delay Ward’s bankruptcy while at the same time “diminish — by tens of millions of dollars — the value” of Ward’s estate. In turn, court papers continued, the delays “permitted GE [Capital] the time it needed to increase its private credit card label business and then ‘flip’ Ward’s credit card customers to a solvent retailer in the GE [Capital’s] credit card portfolio.”
Ward’s filed Chapter 11 on Dec. 28, 2000, and subsequently liquidated its operations. Court papers alleged that GE Capital “caused” Ward’s to file in time for General Electric Co., the parent of GE Capital, to “offset a $1.3 billion gain it had realized from its sale of common stock in Paine Webber Group Inc. in 2000.”
The lawsuit was filed by Larry Gottlieb, partner at Kronish Lieb Weiner & Hellman, bankruptcy counsel to the creditors committee. Officials at GE Capital could not be reached for comment.