Former K-Mart CEO Settles SEC Case for $5.5 Million

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"FORGOT" TO TELL INVESTORS KEY INFORMATION

Charles Conaway, the former CEO of K-Mart has agreed to drop his appeal of a $10 million judgment against him stemming from a Securities and Exchange Commission lawsuit accusing him of misleading investors shortly before the company filed for bankruptcy in 2002. The filing was one of the largest in retail history.

The SEC filed the lawsuit in 2005, claiming among other things, that Conaway failed to tell investors that in 2001 the company had delayed payments to vendors amounting to $570 million. The case focused on a quarterly report to regulators and a conference call with Wall Street analysts in November 2001 in which Conaway did not discuss the vendor strategy or an $800 million ill-timed inventory purchase.

A jury found Conaway guilty in 2009 after a 10-day trial in a Detroit federal court. He was ordered to pay a $10.2 million penalty consisting of a $2.5 million fine, return of a $5 million loan from K-Mart and $2.7 million of interest. The judge in the case, U.S. Magistrate Steven Pepe said that Conaway “played a central role” in the securities violation and lied under oath while testifying in the case.

The settlement with the SEC provides for a civil penalty of $2.5 million and the return of $3 million relating to a retention loan that K-Mart paid him in 2003. “Mr. Conaway wants to get this behind him and move on with his life,” his attorney Scott Lassar, a partner at Sidley Austin LLP in Chicago, said by email. The settlement agreement requires the $5.5 million be paid immediately.

K-Mart emerged from bankruptcy in 2003 as a much smaller operation and is now part of Sears Holding Corp.

The Detroit News

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