Ex-Kmart CEO wants to overturn verdict in SEC case

ANN ARBOR, Mich. -- With millions of dollars at stake, lawyers for the former head of Kmart urged a judge Wednesday to throw out a verdict in a civil trial that centered on what investors should have been told before a bankruptcy filing in 2002.

A jury said in June that Charles Conaway misled Wall Street about the retailer's health. As a result, the Securities and Exchange Commission wants to wrest $22.5 million from the former CEO.

But any financial penalty won't be settled until U.S. Magistrate Judge Steven Pepe handles post-trial objections from Conaway's legal team. Among the key arguments: His lawyers claim the verdict was tainted by bad jury instructions.

In a court filing, attorney Hille Sheppard said the instructions misstated the law and made it too easy for jurors to find Conaway liable in a highly technical case pressed by the SEC.

"It would have been a very different trial," Sheppard told the judge Wednesday.

The trial centered on a conference call with analysts and Kmart's quarterly report to regulators in November 2001. The SEC accused Conaway of failing to disclose an ill-timed purchase of $800 million in merchandise and that Kmart was delaying payments to suppliers to save cash.

Conaway, 49, testified that he didn't write or read the report and relied on his chief financial officer and others. He said it never crossed his mind that he was withholding critical news.

The jury, however, found that Conaway acted "with intent to defraud or with reckless disregard for the truth." Delaying payments to vendors was a "material liquidity deficiency," the jury said, and should have been publicly reported.

The verdict came on the first day of deliberations. Conaway's lead attorney, Scott Lassar, said it suggests the jury didn't carefully consider key points.

Conaway's lawyers want Pepe to throw out the verdict and rule in his favor, or order a new trial. The judge said he would not make an immediate decision.

Pepe acknowledged the jury instructions may have been flawed "in some regard" but said they must be "sufficiently flawed" to scratch an entire verdict.