Federal Investigators Probing Kmart's Finances

Aug. 21 -- Kmart, an icon of American retail, is drawing a lot of curiosity from budget-conscious people these days, but they're not blue-light special shoppers.

The company is under investigation by the Securities and Exchange Commission, the FBI, and a federal grand jury.

At the center of the inquiries is man who used to be at the helm of Kmart's operations: Charles Conaway, Kmart's former CEO. During his less than two years at the company, he made about $13 million, and lived in a mansion. He also re-negotiated his contract five times, at one point scoring himself a $5 million "retention loan."

As the company was spiraling towards financial ruin, he engineered six- and seven-figure "retention" loans for 24 other top executives. Meanwhile, 22,000 Kmart workers were laid off from their jobs.

Investigators want to know whether most of these executives actually had to pay back these loans, and whether Conaway hid Kmart's financial problems from the company's board of directors and investors.

In January, Kmart filed for bankruptcy. Two months later, Conaway was fired. But now there are questions about the new management, and the way they've been spending company money, while Kmart is mired in bankruptcy.

Executives Flying High

One of the areas being looked at is executive travel. Footage from WXYZ, the ABC station in Detroit, shows Kmart executives flying back and forth to bankruptcy hearings on a private jet earlier this year. The executives told the judge that the company can't pay its bills, yet each of the flights cost $10,000. A ticket on Southwest Airlines would cost less than $200.

Kmart's new CEO, James Adamson, is the person who approved the expenses. But in an interview with the ABCNEWS' Detroit affiliate soon after taking over, Adamson didn't even know about the size of the company's jet fleet. The six jets were worth $40 million.

In his interview with WXYZ, Adamson was asked how the company could afford to operate a corporate jet at the same time it was laying people off.