(Bloomberg)—Eddie Lampert, welcome to the 2020 campaign.
Senator Elizabeth Warren, a possible Democratic presidential candidate, slammed Lampert in a letter dated Wednesday, citing the “inherent conflicts of interest’’ in the hedge fund manager’s takeover of bankrupt Sears Holdings Corp.
Warren calling out a billionaire isn’t necessarily surprising -- she’s proposed a tax on the super-wealthy and describes herself as a champion of America’s middle class. What’s unusual is that Lampert made saving thousands of jobs a centerpiece of his winning bid for parts of the 126-year-old retail icon.
In the letter to Lampert, who ran the company until last year and remains its chairman, Warren questioned his “commitment to the company’s employees given your history of slashing jobs.”
Sears “appears to be suffering from a unique set of problems as a result of your leadership -- and now it appears that the same company you brought to the brink of liquidation could be back in your control without any substantial changes in leadership or governance,’’ Warren wrote. She added: “It appears that you have enriched yourself while driving the company into bankruptcy.”
Lampert’s hedge fund, ESL Investments Inc., has said that transactions undertaken while Lampert ran Sears were valid and show consistent support for the company’s return to profitability in the middle of disruption in the retail industry.
Lampert’s offer to buy the company “would preserve employment for tens of thousands of associates, as well as the relationships with many vendors and suppliers who provide Sears with goods and services,” members of the Sears board said in a Jan. 17 statement.
Warren’s salvo is another sign that Democratic lawmakers are serious about making economic inequality a political issue ahead of the 2020 presidential election. A special concern for Warren, a former Harvard Law School professor, and others is the treatment of workers in bankruptcy, where U.S. law focuses on reimbursements to bondholders while people rendered jobless by a company’s collapse are left to fend for themselves.
The liquidation of Toys “R” Us Inc. looms over bankrupt Sears. The toy-store chain’s employees were able to negotiate a $20 million hardship fund for themselves with the company’s private equity owners. To help consummate the deal, they paid an August visit to Capitol Hill, where they met with presidential hopefuls Kirsten Gillibrand and Cory Booker. In their purple and blue company T-shirts, the workers pleaded for limits on leverage in private equity buyouts and protections like profit clawbacks that could generate money to help other laid-off workers. Warren called for lenders to contribute to the hardship fund.
Toys ‘R’ Us Workers Go to Congress to Seek Curbs on Buyout Firms
The publicity, and the workers’ success, created tension in the Sears bankruptcy case. Bankers worried they’d be blamed for firings if they didn’t support Lampert’s bid for Sears. Judge Robert Drain told stakeholders that “it would be a very good thing” if the company could preserve most of the remaining jobs.
Lampert and his hedge fund, ESL Investments, moved to keep Sears alive earlier this month by buying it out of bankruptcy and giving it a new corporate parent. His $5.2 billion proposal cleared one hurdle Jan. 16, and will likely be formally green-lit in court on Monday.
All this despite protests from Sears creditors, including some landlords, vendors and the U.S. agency overseeing its pension fund. An official creditor group has objected to the bid. They say Lampert has pillaged Sears for more than a decade, and have threatened to sue him over controversial past transactions.
Warren raised similar concerns in her letter.
“The inherent conflicts of interest and the decisions you made while running the company have short-changed Sears workers, leaving a company with a long, proud history in American retail on its last legs,” she wrote.
Midterm elections intensified the pressure to rethink the norms of capitalism. Democrats won control of the House of Representatives, and candidates jockeying to take on President Donald Trump in 2020 aren’t being shy about staking out their positions. Warren earlier this week proposed a so-called “ultra-millionaire tax” on households worth at least $50 million.
Warren ended the letter to Lampert with eight queries, including whether Lampert would commit to a five-year pause on share buybacks and provide details of his plans to avoid conflicts of interest and invest in the company. She requested a response by Feb. 14.
“I believe in capitalism,’’ Warren told Bloomberg TV on Wednesday, “but capitalism without rules is theft.”
To contact the reporters on this story: Lauren Coleman-Lochner in New York at [email protected]; Eliza Ronalds-Hannon in New York at [email protected] To contact the editors responsible for this story: Rick Green at [email protected] Bob Ivry, Nikolaj Gammeltoft
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