Sears, or rather the company that formerly owned Sears and Kmart, has sued its ex-CEO, chairman and iconic investor Eddie Lampert and his hedge fund alleging they illegally stripped the retailer of assets in the years leading up to its Chapter 11 bankruptcy. The lawsuit accuses Lampert that while he headed the recently bankrupt company, he directed the transfer of billions of dollars in assets "for grossly inadequate consideration or no consideration at all" for the benefit of himself, his hedge fund ESL Investments and others, Reuters reported. In other words, Lampert allegedly "asset stripped" Sears of most of its attractive assets and personally benefited from the transfers.

The lawsuit, filed by Sears Holdings, targets about two dozen defendants, including Treasury Secretary Steven Mnuchin, who was previously an investor and board member of ESL and has been friends with Lampert for decades.

Sears Holdings - a bankrupt zombie company in every sense of the word - of which Lampert was formerly CEO, chairman and the largest investor, alleged that Lampert's moves "were unmistakably intended to hinder, delay and defraud creditors and/or occurred when the Company was insolvent and had insufficient capital to continue its operations and to repay its billions of dollars in debt."

Had Lampert been prevented to syphon off assets, "Sears would have had billions of dollars more to pay its third-party creditors today and would not have endured the amount of disruption, expense and job losses resulting from its recent bankruptcy filing," the lawsuit continue, and also alleges that Lampert "knew the Company had no plan to return to profitability" and worked "to create a false record to cover up their asset stripping, at Lampert’s personal direction," including "bad-faith predictions" of a "dramatic turn-around."

Two months ago, Lampert struck a last-minute deal to buy Sears assets out of bankruptcy, avoid a liquidation that would leave tens of thousands without a job, and keep about 400 stores open under a new entity called Transform Holdco.

Alleged asset stripper

However, as part of the deal, Sears Holdings, which sold assets Lampert, is still dealing with angry creditors who say that Lampert exploited them and profited from the retailer's descent.

ESL countered, saying in a statement that it "vigorously disputes" the lawsuit, calling them "baseless allegations and fanciful claims" that "are misleading or just flat wrong." According to the hedge fund, under Lampert's leadership, Sears used more than $2 billion in proceeds from asset sales to reduce the retailer's debt and fund its operations. The hedge fund said it did not receive favorable treatment, adding that the Sears board and independent directors authorized the deals in question.

"We are confident that the processes we followed for each of these transactions are unimpeachable," ESL said.

It was not immediately clear whether the lawsuit could disrupt the operations, or what's left of them, of the so-called New Sears.

Lampert came under fire over the past several years for his leadership, such a 2015 decision to sell certain valuable stores to a real estate investment trust called Seritage Growth Properties, where he had a significant ownership stake. Seritage is also targeted in the lawsuit. Lampert also faced scrutiny for loading Sears up with debt from his hedge fund.

Last June, USA Today reported that Lampert and ESL were collecting at least $200 million annually in debt payments from Sears and that Lampert had personally directed the company not to reinvest in major store upgrades.

Ahead of its October 2018 bankruptcy, Sears closed more than 3,500 stores and cut about 250,000 jobs in roughly the last 15 years as sales cratered.

The full filing is below.