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Aug. 12, 2022, 3:10 p.m. EDT

Sears and creditors reach $175 million deal with Eddie Lampert to settle litigation over allegations of self-dealing

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By Ciara Linnane

After four years stuck in bankruptcy limbo, Sears Holdings and its creditors have reached a settlement with former Chief Executive and majority shareholder Eddie Lampert and other investors, clearing the path for the once-storied retailer to execute its bankruptcy plan.

Under the terms of the deal, which was filed in the U.S. Bankruptcy Court for the Southern District of New York, the plaintiffs will receive $175 million to end years-long litigation that pitted creditors against Lampert and other defendants.

In a filing from November of 2019, Lampert and others were accused of “asset stripping and ‘rank’ self-dealing” in the years leading up to the collapse of Sears and its bankruptcy filing.

In the settlement, the debtors acknowledged that the defendants “acted in good faith in taking the actions they took (and in refraining from taking the actions they did not take)”

As MarketWatch reported in May of 2018, Lampert had positioned himself to benefit from the many moves required to keep Sears in business, while shielding himself from potential downside. Lampert wore many hats at Sears, from CEO, shareholder, lender to the company via his hedge fund ESL Investments Inc., and even landlord for some of Sears locations.

For more, read now: Yes, Sears is likely to collapse, but its biggest stakeholder will be just fine

The Wall Street Journal, in  a graphics-driven article  published in December of 2017, outlined how the real-estate investment trust called Seritage was created in 2015 by a group that included Sears shareholders and ESL, which contributed about $3 billion. Seritage went on to acquire 266 properties from Sears and lease many of them back to the retailer.

That means Lampert and ESL received interest payments on loans and rents on real estate, even as the company continued to post heavy losses.

Lampert and ESL also invested in, or took controlling stakes in, assets divested as the company struggled with declining sales, which included property, product brands, and retail brands such as Sears Canada and Lands’ End.

“[A]ltogether, Lampert caused billions of dollars of cash and other assets to be transferred to himself, Sears Holdings’ other shareholders and other third parties,” said the complaint.

Sears was long a mainstay of the U.S. retail landscape, selling Americans just about everything they needed. Analysts said Lampert failed to understand the fast-changing retail sector for at least 10 years and neglected the actual stores, which by the end were drab and carrying an ever-dwindling inventory, much of it heavily discounted.

After the bankruptcy filing, the remaining Sears and Kmart outlets were sold to Transformco, an entity controlled by Lampert, in 2019. Most of those stores have subsequently closed.

The Transformco website includes a map of the U.S. with just 24 properties.

For now, some of Sears’ creditors are still waiting to be paid and suppliers are waiting for payments for products shipped to the company years ago, according to website Retail Dive .

The four years in Chapter 11 and complexity of the case have made it the most expensive retail bankruptcy of a time that saw many others, wrote Retail Dive.

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