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SEC charges 2 ex-Kmart executives

Agency says they mislead investors with false reports

DETROIT -- The Securities and Exchange Commission yesterday filed civil charges against two former Kmart executives, accusing them of making ''materially false and misleading" disclosures to shareholders before the retailer's 2002 bankruptcy filing.

The complaint charges ex-chairman and chief executive Charles C. Conaway and former chief financial officer John T. McDonald with securities fraud, aiding and abetting securities fraud, and aiding and abetting violations of rules that require companies to file quarterly reports and to include material information so they don't mislead.

''Investors are entitled to both accurate financial data and an accurate description of the story behind the numbers," Peter H. Bresnan, of the SEC's Enforcement Division, said in a statement.

Conaway's lawyer, Scott Lassar, said Conaway ''acted at all times in good faith." McDonald's lawyer, Jack Sylvia, said his client ''expects to be exonerated."

The disclosures in question were part of regulatory filings Kmart made for the third quarter and nine months ended Oct. 31, 2001, and in a Nov. 27, 2001, conference call.

Kmart filed for bankruptcy protection in 2002. The Troy, Mich.-based retailer acquired Sears, Roebuck & Co. in March. The new firm is called Sears Holdings Corp.

According to the SEC, Conaway and McDonald dealt with a Kmart cash flow problem by withholding $570 million in vendor payments. The SEC, which seeks civil penalties, says the men lied about why vendors weren't paid.

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