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Eddie Lampert’s hedge fund claims no ‘windfall’ from Sears demise

Think billionaire Eddie Lampert made a bundle off Sears’ demise? “Nothing could be further from reality.”

That’s according to testily written court papers filed on Friday by Lampert’s hedge fund ESL Investments, which fired back at accusations that its deals to siphon off Sears assets over the past decade — from department stores to the Craftsman tools brand — came at the expense of other investors.

“Any allegation that ESL received ‘sweetheart’ deals is plainly wrongheaded and intended to inflame opinion against ESL,” the hedge fund told a US bankruptcy court.

The fund added that no investor has felt the pain of Sears — which filed for Chapter 11 on Oct. 15 — more acutely than ESL. In particular, it denied that it has received any “windfall” in the course of its 13-year investment.

While ESL’s equity stake in Sears was worth $12 billion in 2007, that number fell to $5 billion in 2012. Now, it’s worth less than $20 million, according to ESL.

The cantankerous court filing, which came in response to a motion by creditors who are investigating Lampert’s transactions in Sears’ debt and other assets, was the most extensive statement that Lampert has yet given to answer years of speculation about his controversial Sears deals.

Critics have long suspected that Lampert’s piecemeal sales and spinoffs of Sears and Kmart assets — which began in 2005 when he startled Wall Street by selling 70 Kmart stores for $900 million — have secretly enriched ESL while the retailers’ fortunes have gone steadily downhill.

Creditors are zeroing in on a number of transactions including the sale of the Lands’ End clothing brand, Sears Canada, and Sears Hometown and Outlet Stores. ESL counters that all of its deals were publicly announced and vetted by the company’s board.

“These transactions were made available on the same economic terms to all Sears stockholders, terms blessed by independent directors,” ESL said in its filing.

The most controversial deal involves the sale of 235 Sears stores in July 2015 for $2.7 billion to Seritage, a REIT in which ESL is the largest shareholder.

The creditors maintain that the price and terms of that deal weren’t fair because Seritage had the right to “literally evict Sears” and put tenants in who could pay higher rents.

“This is a gross mischaracterization,” ESL wrote in court papers, pointing to the fact that the properties were appraised by independent real estate experts and that Seritage could only capture 50 percent of the space within 202 stores and 100 percent of the space in 21 stores.

ESL, which is now looking to scoop as many as 400 Sears stores out of bankruptcy, likewise took a swipe at the creditors’ lawyers, saying they have wrongly accused the hedge fund of not being forthcoming in producing documents they requested.

The two sides met in person “just hours” before the creditors submitted their filing about their investigation, ESL said.

“The only reason [they] have limited information,” ESL wrote in court papers, is because the committee was appointed only two weeks ago.