K mart says evidence supports lawsuit against former CEO
CHICAGO (Dow Jones/AP) – Kmart Corp. Tuesday said it has found “credible and persuasive” evidence to support a lawsuit against its former chief executive, Charles C. Conaway, for wrongdoing. “Conaway failed to perform his duties as chief executive officer to adequately supervise and direct other company executives who reported directly or indirectly to him,” according to documents made available Tuesday during the company’s bankruptcy court proceedings.
Kmart’s board found that Conaway failed to disclose the “nature and extent” of the chain’s liquidity problems in the last half of fiscal 2001, which ended in January 2002, and that he also took part in a program to systematically suspend vendor payments. Conaway didn’t stop Kmart employees from keeping from vendors the reasons they were not being paid, according to court documents.
Conaway also allowed some executives to receive millions of dollars in loans and payments they would not have received had all material information been disclosed, the documents said.
A statement on behalf of Conaway released by his lawyer’s office said the company appears to be blaming Conaway for problems that preceded his tenure. It said that the board was kept regularly apprised of the company’s initiatives and condition.
“Chuck Conaway poured his heart and soul into trying to turn around the giant retailer,” the statement said. “At all times he acted honorably and in the best interests of Kmart’s employees and shareholders.”
Conaway joined Kmart in May 2000. He left last March amid sweeping management changes.
Kmart is under investigation by the Securities and Exchange Commission and the FBI, and the company is looking into the way it was managed under Conaway.
Kmart, Troy, Mich., is seeking to make progress toward emerging from bankruptcy this spring.
In a filing this month, Conaway asked the bankruptcy court to lift an automatic stay on payments from the retailer’s liability insurance. The stay is enacted under the bankruptcy code.
Kmart has said it wants the court to deny Conaway’s request because a number of current and former officers have claims against the insurance policy.
Kmart, which plans to exit Chapter 11 protection by April 30, filed for bankruptcy on Jan. 22, 2002.
Last month, the bankruptcy court approved Kmart’s plans to shutter 316 stores, a move affecting at least 30,000 employees, and borrow $2 billion to help it continue operations post-bankruptcy. Last year, it closed 283 stores, affecting more than 22,000 workers.
AP-ES-02-25-03 1301EST