Kmart Target of FBI Probe

The FBI said Thursday that it is investigating Kmart Corp., which has been conducting its own review of the actions of former top executives and the discount retailer’s accounting before it sought bankruptcy protection.

“The FBI is looking at the Kmart situation to determine if there are any criminal violations for a potential prosecution,” said special agent Dawn Clenney of the FBI’s Detroit office.

The Securities and Exchange Commission and the U.S. attorney’s office in Michigan also are investigating Kmart.

The reviews were spurred by an anonymous letter “expressing concern with respect to various matters,” Kmart said. The board of Kmart, which filed the U.S. retail industry’s largest bankruptcy, is conducting its own inquiry.

A spokesman at the company’s Troy, Mich., headquarters said Kmart was notified about the FBI’s investigation earlier this year. He declined further comment.

Earlier in May, Kmart said it was investigating the way the company was run under former Chief Executive Charles C. Conaway as part of an accounting probe it started in January after receiving an anonymous letter purported to be from a Kmart employee.

The accounting investigation that started in January ended Wednesday when Kmart said in an SEC filing that it would restate much of its earnings for the prior fiscal year and change the way it records certain payments from vendors.

Kmart said losses ballooned to $2.42 billion in 2001 from $244 million a year earlier. Much of that loss, about $1.57 billion, occurred in the fourth quarter as weak holiday sales caused a liquidity crisis.

Separately, Kmart said in documents filed with the Securities and Exchange Commission that it forgave $3.01 million in loans to former President and Chief Operating Officer Mark Schwartz.

Shares of Kmart, which filed for bankruptcy Jan. 22, fell 6 cents, or 5.13%, to close at $1.11 on the New York Stock Exchange.