DETROIT (AP) Some Kmart Corp. stockholders filed a class-action lawsuit yesterday against CEO Chuck Conaway on behalf of people who bought Kmart shares prior to the company”s bankruptcy filing.
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Rabin & Peckel LLP filed the suit yesterday in U.S. District Court in Detroit. The suit names Conaway rather than Troy-based Kmart because the retailer is in Chapter 11 bankruptcy protection.
Kmart spokesman Jack Ferry said the company doesn”t comment on pending litigation. Conaway could not be reached for comment.
The suit was filed on behalf of people and companies that bought Kmart common stock between May 17 and Jan. 22, the day the discount retailer filed for Chapter 11.
The complaint says that during that time, Conaway and Kmart said the company was involved in a comprehensive restructuring of operations that was revitalizing the company and its sales.
The suit says those statements were materially false and misleading, because they failed to disclose and misrepresented key facts, including “that Kmart”s purported revitalization was a complete failure as the company was continuing to lose market share to competitors and the company”s purported efforts to reverse this trend were not meeting with success.”
Yesterday”s suit follows a similar one filed Feb. 22 by Cauley Geller Bowman & Coates LLP. Ferry said that usually when one class-action suit is filed, others follow.
Kmart”s stock was trading above $10 in May. Following the bankruptcy filing, the stock fell below $1 a share. Kmart shares yesterday closed up 1 cent at $1.10 on the New York Stock Exchange.
Eric Belfi, an associate with Rabin & Peckel, said the firm was putting out notice to all shareholders so they would be aware of the suit. He said the exact number of plaintiffs wasn”t known at this point.
“You”re talking about easily tens of thousands of potential plaintiffs in this,” Belfi said.
Kmart filed for Chapter 11 following lower-than-expected holiday sales, downgrades by several credit rating agencies and a stock dive.
Bankruptcy experts said the lawsuit is not uncommon and is similar to those filed in most major Chapter 11 cases.
Lawsuits are filed against directors and officers because there is insurance coverage for them, said Martin Zohn, with Proskauer Rose LLP.
Bankruptcy attorney Jerry Reisman, partner in Reisman, Peirez & Reisman, said such suits can be harmful to a company.