They called Eddie Lampert many things. “The Next Warren Buffett,” Business Week gushed in 2004. “Genius,” wrote Fortune in 2006. A “celebrity shareholder,” Institutional Investor labeled him in 2013.

But in mid-October of this year, they were calling him something entirely different. Privately, hedge fund managers distanced themselves, with one calling Lampert a practitioner of “predatory capitalism.” But perhaps the worst assaults came from those claiming to be employees of Sears Holdings — the company that Lampert had famously spent $1.5 billion to acquire, manage, and, as of that month, drive into bankruptcy. They took to employment review website Glassdoor in droves.

The “CEO egomaniac” whom some called “Fast Eddie” was “ruining the company,” they wrote. “Eddie Lampert doesn’t know the first thing about retail,” another complained. “He is just a hedge fund manager that is looking for an exit strategy.”

One person put it more bluntly: “Eddie Lampert sucks.”

Some of those anonymous employees may very well have been in the room in Hoffman Estates, Illinois — the company’s headquarters — on October 16, when Lampert, after more than a decade at the Sears helm, made the best case he could for presiding over its demise.

“I did everything I could think of to try to make this company great again because I care deeply about it,” he insisted, according to an audio recording of the town hall speech Institutional Investor received. “There were mistakes along the way, for which I take responsibility. Those failures have affected me in many ways far greater than any successes I have had. They have forced me to dig deep, to discover who I am and what I value.”

Those assembled for the speech, made the day after Sears filed for bankruptcy, were likely not mollified, or impressed, by this self-discovery — which had come at the expense of their employment. And they might have noticed that one thing the hedge fund mogul did not say is whether he actually lost money off his investments in Sears, Roebuck & Co. and Kmart, which merged to become Sears Holdings in 2005.

In fact, in an interview with The New York Times days after the October 15 bankruptcy filing — his only one since then — Lampert chose his words carefully. “I’ve taken a huge personal hit,” he told the Times. “Not just in money, but time. There’s been an enormous opportunity cost.”

It’s true that Lampert is not as rich as he was when Sears stock was riding high postmerger. According to II’s annual Rich List of the top-25 hedge fund earners — on which he landed nine times — the hedge fund titan earned more than $7 billion over the years. That was before losses on Sears shares and massive redemptions from his hedge fund reduced his personal fortune to what Forbes estimates is now just $1 billion.

Today Lampert’s reputation as the hedge fund world’s golden boy has lost its sheen. ESL Investments, the hedge fund that is now largely Lampert’s own money and invests mostly in Sears stock and debt and its spin-off companies, had regulatory assets under management of $1.3 billion at the end of last year, according to a filing with the Securities and Exchange Commission — down from a peak of more than $16 billion.

To be sure, talking about “opportunity cost” may sound tone-deaf. But certainly almost any other investment — even an S&P 500 exchange-traded fund — on its face would appear to have proved a more efficient use of Lampert’s time.



Yet below these depressing figures lies a shocking truth.



Although current Sears shareholders have lost almost their entire investment, tens of thousands of employees have lost their jobs, and creditors — including the U.S. government — and others are owed $11 billion, Lampert has still made nearly $1.4 billion to date from his Sears investment, a number that has never been calculated before. It’s also a sum that could change radically — up or down — depending on the outcome of what is likely to be a contentious bankruptcy process, which is now unfolding.

At its peak in early 2007,Sears had a market capitalization of nearly $30 billion — almost twice that of Amazon at the time. The stock now trades at 33 cents per share, but financial engineering — dividends, interest payments, and asset spin-offs deployed to keep the company out of bankruptcy — looks to have narrowed Lampert’s losses on an approximate $1.5 billion equity investment to close to $624 million.

Those losses, however, pale in comparison to the profits Lampert made, thanks to the compensation structure of his hedge fund, which he launched in 1988 at the age of 25. At Sears’ peak, the fund owned about half of the retailer. Performance fees that ESL’s investors paid Lampert on his Sears and Kmart investments as those shares took off, amounting to almost $11 billion at the end of 2006, come to an estimated $2 billion. That figure doesn’t include the fund’s management fee, estimated to be between 1 and 2 percent of assets, or investor payments for professional services — including legal, accounting, auditing, and brokerage commissions and fees.

It doesn’t end there. The wild card in valuing Lampert’s Sears wealth is the $2.6 billion in the retailer’s debt, including some $1.5 billion secured by Sears’ real estate and other assets, owned by ESL and other Lampert entities. In any typical bankruptcy, the secured debt would be considered safe. Add that to the $1.4 billion, and Lampert’s Sears investment could be worth almost $3 billion. And if Lampert succeeds in his latest gambit — which is to swap that debt for hundreds of profitable Sears stores — he could wring even more money from Sears before it’s all over.

But Lampert’s status as Sears chairman and CEO, on top of the hedge fund manager’s ownership of both debt and equity, is likely to give way to a torrent of litigation in bankruptcy that could change that calculation. Unsecured creditors are already going after Lampert and ESL, arguing in a November 6 bankruptcy court filing that insiders “may have siphoned value away from the company on favorable terms” at the expense of other creditors ever since the merger with Kmart in 2005. In the filing the creditors mention a litany of potential charges: fraudulent transfer, breach of fiduciary duty, equitable subordination, and debt recharacterization.

Lampert denies any favoritism. “ESL’s actions have always been taken in good faith, on fair terms, alongside third parties, regularly reviewed by independent and experienced advisers, and beneficial to all Sears stakeholders,” the hedge fund said in a court filing in response. Nor did these investments result in any “windfall” for ESL, the hedge fund claimed, noting that its Sears shares are now worth only $20 million.

The Sears chairman (Lampert relinquished the CEO role when Sears filed for bankruptcy protection) declined to be interviewed for this article. But he has his defenders.



Those close to the man insist the argument that he’s making money off his Sears fiasco is a false narrative. “The whole thesis that Eddie is making out somehow like a bandit here — a lot of that is just because you’ve got a very sophisticated guy who made a ton of money, so ipso facto, there must be something going on,” says one such person. But even when detailing the stock losses and the debt at risk in the bankruptcy, this person neglected to mention the beauty of the hedge fund business: Fees made on the way up rarely have to be returned.



Ah, and what a ride it was.

Edward Scott Lampert’s Icarus-like rise began on the famed risk arbitrage desk at Goldman Sachs, where Lampert landed straight out of Yale after graduating summa cum laude and rooming with now–Treasury Secretary Steve Mnuchin, the son of then–Goldman partner Robert Mnuchin. (Steve Mnuchin would later invest in ESL and serve on the board of Sears; he left upon joining the Trump administration.)



Lampert’s time at Goldman didn’t last long, however. After only three years, the young man launched ESL with a $28 million seed investment from Richard Rainwater, whose job was investing the oil fortune of Texas’s Bass family. Soon the wunderkind had acquired some glittering boldface names as investors, including computer pioneer Michael Dell, New York’s Tisch real estate family, and entertainment mogul David Geffen.



In 2006, Geffen boasted to Fortune magazine that he had made more money as an ESL investor than in “all the businesses I’ve created and sold.” Geffen redeemed his entire investment that year — almost at the peak of Sears’ stock price. Most of the other big names would soon follow.



Yet even early on, others saw a different side of Lampert.



“Eddie is a very tough taker,” says one corporate executive who met Lampert when the young man was working at Goldman in the 1980s. “He was a sponge. He was one of those guys that you talk to who wants to meet people and wants to take information and was never forthcoming on the other side.”



Lampert wasn’t alone in his ambition. Seven men who worked on Goldman’s risk arb desk went on to start hedge funds, the most successful being Farallon Capital Management, launched two years before ESL. Farallon’s now-retired founder, Tom Steyer, worked with Lampert at Goldman — and disliked him so much that when Farallon shorted Sears in recent years, colleagues recall, Steyer was gleeful about watching Lampert being brought down. “Tom never had a bad word to say about anybody — except Eddie Lampert. I never could figure it out,” says one person who worked with Steyer at Farallon.



Steyer, now a liberal political activist, did not respond to a request for comment. But in a tweet posted the day of the Sears bankruptcy filing, he came out swinging: “So the owners of Sears have been stripping assets ahead of the pensioners and the taxpayers, who will end up paying the pensions. That is not right — it is theft!”



In late 2004 a flattering cover story in Business Week heralded Lampert as the next Warren Buffett. A year earlier the hedge fund manager had made an $800 million investment in the debt of bankrupt Kmart that gave him control of the discount retailer when it returned to the public markets, debt-free. Lampert already had a sizable stake in Sears Roebuck, for which he appears to have paid about $700 million. The next year, as the new chairman of Kmart, he used its stock price to take over Sears in a deal valued at $11 billion. At the end of 2004, Business Week reported, ESL had a 29 percent annualized return for the previous 16 years.

But the tale of ESL would not be that of a brilliant investor. Instead it was a blueprint for how the financial engineering that was in full swing across corporate America could so utterly fail — with hedge fund managers reaping rewards along the way.



During 2004, Kmart stock soared and ESL’s stake in that company and in Sears grew to $5.7 billion from an initial investment of $1.5 billion, according to filings with the SEC. In 2005 and 2006 the newly merged Sears stock continued its ascent. At the end of 2005 — the year of the merger — ESL closed the year with $7.5 billion in Sears stock, according to its filings. In 2006 its Sears stake grew to a peak of $10.9 billion. Lampert is believed to have charged the average 20 percent hedge fund performance fee, so he would have made an estimated $1.9 billion during the stock’s ascent — money that could never be clawed back. (He earned an additional $135 million in such fees in 2013.)



There was no magic to the stock’s surge, says Mark Cohen, a Columbia Business School professor and a former CEO of Sears Canada who is one of the most virulent critics of Lampert’s reign at Sears. Cohen traces the company’s downfall to Sears Roebuck CEO Alan Lacey, whom he accuses of “catastrophic decision making” — including doing the deal with Kmart.



“He’s the one who bought 51 Kmarts from Lampert for $605 million in cash, and that caused the Kmart stock price to go right through the ceiling because the Street said, ‘Wow, Kmart’s worth an enormous amount more than the stock price.’ What did Lampert do? He turned around and used the inflated value of Kmart stock, and the cash, and bought Sears Roebuck.”



Soon, Cohen goes on, Lampert “takes an ax to the company’s operating expense and capital expense, and for the first year and a half he looks like a genius because free cash flow explodes, and the Street is calling him the next Warren Buffett.” But, Cohen cautions, “any enterprise that suddenly stops investing in itself for some short period of time is likely to look geniuslike.”

For his part, Lampert was unapologetic from the start: “The notion of spending money on the business — I’m not opposed to it. I just want a return for it,” he told Fortune in 2006.

Instead of investing in the stores, which were already run down, Sears started buying back shares. Between 2005 and 2008 it bought back $5 billion worth of stock — well over double what was spent on capital expenditures during the same time frame.



“Had that cash been saved, Sears would’ve been saved,” says one hedge fund manager who has been short Sears stock for years.



By 2007, as the economy started to wobble, earnings began drifting down. “I would attribute that to starving the business,” says former hedge fund manager Whitney Tilson, who now runs seminars on the business of hedge funds and teaches Sears as a lesson in what he calls “value traps” — companies that investors think look inexpensive but are actually duds.



The fortunes of Sears never recovered. “It was burning through $1.5 billion every year for the past five years,” Tilson says. “You didn’t have to be a genius to predict this company was going to be destroyed and go bankrupt. It was clear five years ago.”



To stave off the day of reckoning, Sears began selling assets. In 2012 it sold off Sears Canada, giving ESL a 28 percent stake, and Lampert later paid $212 million in a rights offering for more shares. Sears Canada ended up filing for bankruptcy in 2017, but Lampert was able to cut his losses to about $44 million, as he received a pro rata share of some $600 million in dividends Sears Canada had given to its shareholders in 2012 and 2013. The status of those dividends is now being disputed in a Canadian court.



In 2013, Lampert took over as CEO of Sears. It was around the time that things looked so grim that a group of Goldman Sachs clients who’d invested $3.5 billion in ESL pulled their money when their five-year lockup expired, according to The Wall Street Journal. Lampert was forced to shed some Sears shares to cover the redemptions. (ESL’s annualized return since inception is still 12 percent, according to Bloomberg — which means the fund has lost almost 6 percent annually starting in 2005, given the 29 percent annualized gain until that time, according to Institutional Investor calculations.)



As ESL’s returns began falling, Lampert moved to Florida, where he would no longer have to pay state income tax. He ran Illinois-based Sears from the Sunshine State and outsourced most of the hedge fund’s functions to a team that stayed behind in Greenwich, Connecticut, where ESL had been located.



Then, in 2014, Sears spun off clothing and décor brand Lands’ End — a deal that took away major assets from Sears that could have been used to pay unsecured creditors, including its pension fund. (Today the pensions are in the hands of the Pension Benefit Guaranty Corp., one of Sears’ largest unsecured creditors, which is owed more than $1.5 billion, according to court filings.)



In the spin-off to Sears shareholders, ESL and Lampert received nearly half of the new company, a little more than 15 million shares, at no cost, which gives his original stake a value of about $281 million today. Lampert has added to his position over the years, and as of the most recent SEC filing has 21,526,634 shares, for a 67 percent stake in Lands’ End. A calculation of the gains made on the additional shares, based on 13Da filings, comes to more than $19 million, for a total $300 million gain on Lands’ End to date.



Like many hedge funds that have gotten burned investing in fading retailers, ESL is believed to have premised its original Sears thesis on the value of the real estate the retailer owned. The question was how Lampert would monetize it.

He answered that with a real estate investment trust created in 2015 to buy more than 200 Sears locations, then lease them back to Sears. Lampert, now the chairman of that REIT, called Seritage, paid $745 million for his stake, which has risen nearly 30 percent from the price he paid for it, giving him a gain of about $200 million.

That deal is a major one that unsecured creditors are eyeing in hopes of clawing back some of its value. They have argued in a court filing that the Seritage transaction removed Sears properties at “substantially less than fair value while burdening them with unfavorable leases of those same properties,” mentioning an appraisal at “hundreds of millions of dollars” more than the one used to price the shares.

On top of Seritage, Lampert and ESL have also earned $400 million in interest income from their loans to Sears.

As a result of such dealings — which include five major asset sales and 15 financings — ESL hasn’t lost the entire $1.5 billion it invested in Sears and Kmart equity. Including the gains and losses on the major spin-offs, dividends, and interest income, it appears that loss was narrowed to about $624 million. Adding back the $2 billion in gains from hedge fund fees would give Lampert a net profit of approximately $1.38 billion. And that’s not even counting the uncertain value of his $2.6 billion in Sears debt, with its liens on Sears real estate, among other items.

“He has every incentive to say ‘Woe is me,’” says a hedge fund manager familiar with ESL. “But I think he’s crushed it.”

To some observers, Lampert was simply doing his best to save the iconic retailer from the dustbin. “Maybe he’s enriched himself during the process, but at the same time, you’re got to give him props,” says David Tawil, president of hedge fund Maglan Capital. “Landlords have been able to collect rent, and employees have been able to collect paychecks.”



Others see something more sinister at work. “It’s like a chess game for his benefit,” says the anonymous hedge fund manager, who thinks Lampert is one step ahead of everyone else — and probably has a spreadsheet tallying it all up.



This may be giving him too much credit, says former Sears Canada CEO Cohen. “He’s not a genius. If he were a genius, he wouldn’t have filed for bankruptcy before the holiday. This is a mistake on his part.” That situation was forced on him when Sears ran out of cash but had to make a debt payment in October, says Cohen. Now, he posits, the man who was “always completely in charge” is “trapped.” Other creditors “are going to tear him and what he has done apart. They’ve sharpened the knives.”



The decision about whether or not they get to use those knives is now in the hands of a judge in a federal court in suburban White Plains, New York.

There, U.S. bankruptcy judge Robert Drain is overseeing one of the most complex cases in corporate history. Already more than 4,000 claims have been filed with the court, from suppliers like apparel companies and lighting vendors to unsecured creditors as disparate as the U.S. government and a major mall property owner.



The court has already approved emergency loans to help keep Sears alive during the bankruptcy proceeding and has agreed to allow the company to sell hundreds of stores to bolster its prospects. Lampert is planning to bid on those stores in what’s being called a “takeover.” But those efforts are complicated by the hedge fund CEO’s outsize role at Sears.



In an attempt to avert bankruptcy, Lampert originally tried to buy the Kenmore appliance brand for $400 million and take over more Sears real estate. But the board balked at the insider deal, then set up a special restructuring subcommittee to look into concerns about insider dealings raised by Lampert’s debt and equity investments in Sears and the various spin-offs that drained it of assets to pay creditors.



To get a sense of what that could mean, look no further than Canada. In November the court-appointed monitor for Sears Canada’s 2017 insolvency, FTI Consulting Canada, told an Ontario court it wants to start proceedings against Lampert and ESL in connection with the $509 million paid by Sears Canada to its shareholders in 2013. FTI argues the dividend was made with “limited analysis” as Sears faced “worsening financial results,” and ESL appears “to have had an urgent liquidity need” based on redemption requests the hedge fund received that year. ESL has said the claims are without merit. In addition, at least five planned or proposed lawsuits against Lampert and his related firms and former board members are underway, according to a report in Toronto’s Globe and Mail.



The Canadian proceedings are farther along than the U.S. bankruptcy, But in the latter’s first-day hearing, on October 15, even former allies turned against Lampert, arguing that he has been presiding over a controlled liquidation for years. At the hearing an attorney for Fairholme Capital Management’s Bruce Berkowitz, a longtime Sears investor and onetime board member, sent what observers viewed as a warning.



“These cases are the last mile in a multiyear liquidation, one that happened without court supervision,” Fairholme attorney Andrew Dietderich, a partner at Sullivan & Cromwell, told Judge Drain. Fairholme is also an unsecured creditor, with some $330 million in Sears debt.



Not only was Sears selling off assets, but ESL’s subsequent loans were secured by many of the remaining ones. “All or substantially all of these transactions appear to have been undertaken at a time when the subject entities were insolvent or rendered insolvent thereby,” Ira Dizengoff, the Akin Gump lead attorney for the unsecured creditors, wrote in their initial filing seeking expedited discovery regarding ESL’s actions.



If the company was already insolvent when these deals were done, as is being charged, Lampert could face a rare claim of what’s called equitable subordination, according to bankruptcy lawyers. If successful, that would reclassify his debt as equity, making it virtually worthless. Furthermore, it would disrupt his plans to use the assets securing his debt — instead of cash — to buy Sears stores in what’s known as a credit bid. Such bids also typically require a release of all claims against the buyers — which unsecured creditors are expected to protest.



The alternative is for Sears to go into liquidation — which could pummel the value of Lampert’s real estate holdings, including those Sears stores now owned by Seritage. Liquidation firms that would shut down Sears’ stores and sell off the company’s merchandise have already been preparing their own bids, according to a report in The Wall Street Journal.



For creditors liquidation may be the best chance they have of getting their money back. In a recent filing they threw cold water on Sears’ plan to survive as a going concern, saying it is “nothing more than wishful thinking” and “an unjustified and foolhardy gamble with other people's money.”



“We recognize that we have a tough task ahead of us to save the company,” admitted Weil, Gotshal & Manges’ Ray Schrock, the lead attorney for Sears at a recent hearing. “We’re not blind to that fact . . . that we may not be successful.”

Many on Wall Street believe Lampert’s actions just prolonged the inevitable. But others — including insiders — disagree.

In 2000, Sears generated $1 billion in free cash flow. “It could have been saved,” notes Mark Cohen. But under Lampert, he says, “Sears was a slow-moving train wreck.”

It seems doubtful that was what Lampert had in mind when, in the 2006 Fortune interview, he was coy about his plans for Sears. “One of the unspoken secrets about business leaders is that they often have no idea about where they’re going to end up,” he said. “I know the right direction. Whether we end up at the destination — rebuilding Sears Holdings into a great company on many dimensions — I don’t know. But we’re headed in that direction.”

Cohen shakes his head at such comments. “Little Eddie, I don’t know what really makes him tick,” he says. “He’s either delusional, disingenuous, or dishonest — or some combination of the three.”

Whichever it is, he’s made a boatload.

Lampert’s personal assets still include a $40 million Florida estate on exclusive Indian Creek Island, a $26 million waterfront home in Greenwich, and a third home in the pricey ski resort of Aspen, Colorado.

Then there’s the most impressive of all — a $130 million, 288-foot yacht Lampert christened The Fountainhead.

The yacht’s name, of course, is a nod to the famous work of novelist Ayn Rand — the Russian immigrant who turned selfishness into an economic philosophy.