Sears boss Eddie Lampert accused of possibly profiting from retailer's decline

Sears Holdings chairman and investor Eddie Lampert may have profited from the company's plunge into bankruptcy, a group of creditors alleged Tuesday.

A committee organized to represent the retailer's unsecured creditors in court accused Lampert and his hedge fund ESL Investments of potentially structuring deals to gain an unfair edge as the company declined.

They "may have exercised undue influence to siphon value away from the Company on favorable terms," the creditors group said in a court filing.

The group also said Lampert may have leveraged his "insider status to obtain an ever-increasing percentage" of Sears debt, allowing him to "obtain beneficial positions" in the retailer's Chapter 11 bankruptcy.

USA TODAY reported in June that Sears was giving Lampert and his funds about $200 million to $225 million per year in debt payments.

Sears representatives declined to comment.

Lampert's ESL said in a statement that the hedge fund "has consistently supported Sears Holdings in its efforts to transform and return to profitability during a period of rapid change and disruption in the retail industry."

"We have every confidence that all transactions involving ESL and Eddie Lampert are valid and enforceable, based on fair and reasonable terms, which were approved by independent directors who were advised by independent financial and legal advisors and featured other appropriate corporate governance procedures," the hedge fund said. "Any legal claims that attempt to challenge these transactions will have no merit and we will defend ourselves vigorously against any asserted claims."

Lampert, who served as CEO from 2013 through the company's bankruptcy filing last month, extended billions in financing to Sears. He also holds ownership stakes in various assets formerly owned by Sears, including valuable real estate spun off in 2015 into a real estate investment trust called Seritage Growth Properties.

"No one should be shocked that he is profiting off transactions to lend Sears money —the issue is, were those deals done at arm’s length and at commercially reasonable terms?" said Philip Emma, senior analyst at Debtwire, which provides news and analysis of corporate and municipal debt. 

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The Seritage deal was particularly suspicious, the unsecured creditors group alleged.

The committee said its examination of the deal shows it "appears to be at discounted prices" and that subsequent leaseback deals to Sears carried "unfavorable and burdensome terms" for the struggling retailer.

Sears was paying Seritage $90.8 million in annual rent for 151 leases, amounting to $4.73 per square foot, according to a Seritage public filing.

Seritage representatives were not immediately available for comment Tuesday.

The creditors group is asking a judge to force Sears to give up documents related to the deals in question, including $2.4 billion in debt held by Lampert through his investment funds, including ESL.

Debtwire's Emma said creditors typically pull all available levers in bankruptcies in an attempt to get paid. So it's "not unexpected" that they would make these accusations given Lampert's history of lending to Sears.

What's "pretty unusual," he said, is that Lampert is acting simultaneously as debtor, investor, lender, landlord and vendor.

Sears filed for Chapter 11 bankruptcy protection in October, hoping to shed debts and close more than 180 unprofitable stores in a bid to stay open as a smaller company. It had 687 stores when it filed, including its Kmart discount stores.

Lampert's ESL owns nearly 50 percent of Sears. He engineered the company's tie-up with Kmart in 2005 and has served on its board since. He gave up the CEO post when the company filed for bankruptcy.

In the final months leading up to the Chapter 11 filing, Lampert proposed that his hedge fund buy Sears appliance brand Kenmore, but a deal never happened.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.