Treasury Secretary Steve Mnuchin has just been sued in bankruptcy court by the defunct Sears department store chain for fraud and self-dealing while he was a director of the company.
Mnuchin sat on both Sears’ board and on the board of a major Sears shareholding company for eleven years. Lawyers for Sears’ creditors allege that Mnuchin is part of a group of “Culpable Insiders” who unethically profited by selling the company’s assets below market to companies they controlled.
The fraudulent transfer scheme which Mnuchin perpetrated with his college roommate from Yale, Eddie S. Lampert, raked in over $2 billion. The end result was that Mnuchin, Lampert and their cronies executed a long, slow corporate raid on the 126-year-old retailer that cost over 45,000 workers their jobs in just the last two years. The lawsuit alleges:
The directors of a corporation have a duty to all shareholders, but Mnuchin and Lampert gave themselves and their friends a series of sweetheart deals, ignoring the companies’ advisors.
Mnuchin and his former Goldman Sachs colleague Lampert engaged in five major self-dealing transactions, dumping the chain’s prime real estate holdings below market to themselves as well as selling themselves popular brands like Land’s End, Die Hard, Craftsman and Kenmore for big discounts.
Lampert used a maneuver in bankruptcy court to buy a majority of K-Mart in 2002, then bought Sears in a stock deal merging the two venerable retailers. He became its CEO in 2013.
As Sears CEO, Mnuchin’s business partner Lampert had an utterly deranged Ayn Rand-inspired objectivist philosophy which led him to turn the company into forty different bureaucratic divisions and let them compete with each other for resources. Lampert tried to run the entire company by remote from his island mansion off the coast of Miami Beach.
Unsurprisingly, it was an unmitigated disaster. The 3,500 store chain shrunk to just 1,000 stores in a little over a decade.
Sears was so horribly mismanaged that even President Trump said, “Sears has been dying for many years. It’s been obviously improperly run for many years and it’s a shame.”
Mnuchin blessed all of this and the transfers as the Vice Chairman of Lampert’s hedge fund ESL Holdings, a director of both K-Mart, Sears, Land’s End and the board of Seritage, a new publicly traded company formed to swipe Sears’ prime real estate. He also served on the board of a company that gave a “related party” loan to Sears.
Eventually, Mnuchin resigned from the board, but ESL Holdings became the beneficiary of even the bankruptcy courts when Lampert bought out the remains of Sears earlier this year. Politico reports:
The suit, brought on behalf of Sears debt holders, also argues that Sears “repeatedly produced financial plans reflecting fanciful, bad-faith predictions that the Company would experience an immediate and dramatic turnaround from deep and mounting losses to sudden profitability.”
Sears declared bankruptcy last October and was acquired by an affiliate of ESL, Transform Holdco, in February.
A spokesperson for ESL Investments said the fund “vigorously disputes the claims” against ESL, Lampert, and ESL President Kunal Kamlani, another Sears board member.
Meanwhile, of the 90,000 Sears workers employed at the time last year’s bankruptcy filings, only 40,000 of them have retained their jobs.
Mnuchin’s friend Lampert added injury to injury last month retired Sears employees who received a lifetime life-insurance benefit from the retailer. He canceled those policies on March 15th and informed the National Association of Retired Sears Employees five days later.
Trump Treasury Secretary Steve Mnuchin is a poster child for corporate wrongdoing in the boardroom, getting rich on the misfortune of others. He divested his shares in Seritage and the other firms to Lampert in 2017, getting a tax deferral certificate for doing so.
That means Steve Mnuchin got to use his job as Trump Treasury Secretary to save huge money on taxes from cashing out of his scammed earnings at Sears.
Unfortunately, earning money by ruining the lives of others seems to be a hallmark of the Trump Administration, so Mnuchin will feel no ill consequences from his current boss because he’s providing the same service to Trump that he did Lampert.
Considering that Treasury Secretary Mnuchin is a world-class expert at looking the other way while fraud is taking place or facilitating white-collar scams, it’s easy to understand why Trump has him on his Cabinet.
Here’s a copy of the lawsuit against Treasury Secretary Mnuchin and Eddie Lampert: