June 3, 2009 > Lawyers give closing arguments in Kmart case
Lawyers give closing arguments in Kmart case
By Ed White, Associated Press Writer
ANN ARBOR, Mich. (AP), May 29 _ The former head of Kmart Corp. used ``lies, deceptions and half-truths'' to keep investors in the dark about a cash crisis in the months leading to a 2002 bankruptcy, a government lawyer told jurors Friday at the end of a civil fraud trial.
The Securities and Exchange Commission is not accusing Charles Conaway of cooking Kmart's books or fleecing the company for personal gain. The allegations center on a phone call with stock analysts and a quarterly report to regulators, both in November 2001.
The government says Conaway is liable for Kmart failing to specifically disclose that it had been delaying payments to vendors and prioritizing bills to save cash. The company also was dealing with an ill-timed purchase of $800 million in merchandise.
``This case at its core is about credibility. ... It's about the senior-most executives at Kmart covering up with lies, deceptions and half-truths a liquidity crisis,'' SEC lawyer Alan Lieberman said in his closing argument.
Conaway, 48, was considered a turnaround specialist when he was hired as Kmart's chairman and chief executive in 2000, a time when the venerable retailer was getting crushed by Wal-Mart Stores Inc. and Target Corp.
His lawyer, Scott Lassar, said the SEC's case is ``ridiculous,'' ``absurd'' and a waste of tax dollars.
``He never should have been brought here,'' Lassar told the jury.
Conaway testified that he didn't write or read the management-analysis section of the quarterly report to the SEC. He said the company was catching up with vendor payments and had $1 billion in cash and credit when the report was filed.
``No one is interested in what happened in the past,'' Lassar said. ``There is nothing to hide and there's no motive to hide.''
Kmart's stock dropped 15 percent when Conaway talked about poor sales on the conference call with Wall Street _ a point emphasized by his lawyer.
``This was the key information the public was interested in,'' Lassar said.
Conaway ``tried very hard to turn Kmart around, but he is not a crook,'' his lawyer told jurors. ``I ask that you give him his reputation back.''
Lieberman, however, said Kmart had a legal obligation to explain that liquidity had improved because there was a ``mountain of unpaid, past-due bills.''
``It's a matter of common sense,'' he said. ``What would the reasonable investor want to know?''
The jury heard 48 pages of instructions from U.S. Magistrate Judge Steven Pepe and said it would start deliberations Monday. For Conaway to be found liable, the jury must find his actions were intentional and the information was ``material'' to investors.
Earlier Friday, on the 10th day of trial, jurors saw a videotaped deposition of Jeff Boyer, who was fired as chief financial officer just a few weeks before Conaway's conference call with analysts.
Boyer said it was not ``illegal'' or ``unethical'' to delay payments to suppliers. But he didn't believe Kmart's board ``had a sense'' of what the company was doing to conserve cash.
If the SEC wins the case, it's possible Conaway could be barred from serving in management at a public company.
Kmart emerged from bankruptcy as a smaller company and now is part of Sears Holdings Corp., based in Hoffman Estates, Ill.