Kmart Corp

Drug Store News,  Sept 12, 2005  

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WASHINGTON -- The Securities and Exchange Commission on Aug. 23 accused Kmart Corp.'s former chief executive officer and former chief financial officer of allegedly misleading investors about the retailer's finances.

Former chief executive officer Chuck Conaway and former chief financial officer John McDonald are accused of "materially false and misleading disclosure" about Kmart's liquidity and related matters in the company's quarterly SEC filings for the period ended Oct. 31, 2001.

"Kmart's senior management failed to honestly inform investors that Kmart faced a liquidity crisis in the third quarter of 2001, how the company's own ill-advised action had caused the problem and what steps management took to respond to it," stated Peter Bresnan, the SEC's associate enforcement director.

The SEC stated that Conaway and McDonald failed to disclose the reasons for a "massive inventory overbuy" in the summer of 2001 and the impact that had on the company's ability to generate cash quickly.

On Aug. 30, four former Kmart Corp. and Newell Rubbermaid executives settled allegations that they helped Kmart improperly account for vendor allowances for promotional and marketing activities before Kmart filed for bankruptcy in 2002.

The SEC said actions by two former Newell executives, Douglas Ely and Barry Berlin, and two former Kmart employees, Michael Spake and David Levine, resulted in Kmart overstating net income in the fourth quarter of fiscal 2000 by $4.8 million.

Three of the four agreed to pay a combined $90,000 in civil penalties as part of their settlements. Without admitting or denying any wrongdoing, all four agreed to cease-and-desist orders in administrative proceedings brought by the SEC.

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