CHICAGO, Jan. 27 (UPI) -- When it filed its 500-page reorganization plan in U.S. Bankruptcy Court late Friday, Kmart revealed it had turned over more than 1.5 million pages of documents under subpoena to the Justice Department and Securities and Exchange Commission.
The corporation's 14-page internal investigation said its finances were shattered in 2001 by widespread deception by former executives who used company jets for junkets, leased luxury cars and collected $28.9 million in questionable retention loans weeks -- sometimes only days -- before Kmart ended up in federal bankruptcy court.
Kmart is demanding repayment of the money.
"We have made information public today (Friday) that there is credible and persuasive evidence demonstrating that certain former managers of Kmart violated their stewardship responsibilities to Kmart, its employees and stakeholders," Julian Day, Kmart's new president and chief executive officer, said in a statement.
Former CEO Charles Conaway, who received $3 million, was accused of being "grossly derelict" in the retailer's downfall. Kmart has lost more than $2.1 billion. The internal review found unqualified executives, consultants and store managers were hired to deliberately slow payment to vendors under "Project Slow It Down" -- an alleged scheme to cut costs and artificially inflate margins.
Managers and employees who challenged Kmart's profit forecasts were demoted or transferred and their files changed after the fact, Kmart said.
The Detroit News reported grand juries have subpoenaed more than 100 people to testify about alleged fraud at Kmart in the past seven months. Conaway and former president Mark Schwartz reportedly were among former executives under investigation.
Kmart's reorganization plan calls for it to emerge from Chapter 11 protection as early as April, then take on low-cost rivals Wal-Mart and Target Corp. by stocking its 1,513 remaining stores with items tailored appeal to the customer base in neighborhoods the stores serve.
New stores will be smaller, brighter and have wider aisles than the old mega centers and managers will have authority to sell food, fashion and everyday items that appeal to local shoppers.
Fitch Ratings, banking and bond rating service, Monday placed class G commercial mortgage certificates on negative rating watch because of uncertainty over potential losses on Kmart loans after the No. 3 discounter announced plans earlier this month to close another 326 stores.
Kmart projected it would make a profit of $181 million in 2004 after losing $286 million in the fiscal year ending Friday. A hearing on the reorganization plan was scheduled for Feb. 25.
Kmart will have closed more than 600 stores and eliminated 67,000 jobs since filing for bankruptcy a year ago.
