Kmart Says Ex-CEO Misled Board in 2001

Kmart Corp., the largest U.S. retailer to file for bankruptcy protection, said Tuesday that former Chief Executive Charles Conaway misled directors in the months before the company ran out of money in late 2001.

Conaway failed to provide outside directors with “significant information” at a time when the company was withholding payments to suppliers, Kmart said in court documents filed in U.S. Bankruptcy Court in Chicago. The retailer said there was enough evidence to pursue legal claims against the former CEO.

Kmart presented a new plan in court Tuesday aimed at convincing creditors that the company can continue operating once it exits bankruptcy protection in April. Kmart was forced to file for bankruptcy protection in January 2002 after Conaway’s plan to match Wal-Mart Stores Inc.’s lower prices failed.

“The recent action of the board appears to be a misguided attempt to blame Mr. Conaway for problems which long predated his tenure,” Conaway’s attorney, Scott Lassar, said.

Kmart said there was enough evidence to support the filing of legal claims against Conaway by a trust set up under the reorganization plan.

Troy, Mich.-based Kmart filed for Chapter 11 protection after some suppliers halted shipments because of concerns they wouldn’t get paid. Conaway left two months later. His termination was found to be “for cause,” according to the filing.

“Conaway failed to perform his duties as CEO to adequately supervise and direct other company executives,” Kmart said in documents detailing its internal investigation of the company’s accounting and management in the months leading up to the bankruptcy filing.