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Kmart was founded in 1899 by Sebastian S. Kresge as the S.S. Kresge Company. They filed for bankruptcy in 2002, and were acquired by Sears in 2005. The Securities and Exchange Commission accused two former Kmart executives with misleading investors about the company’s financial condition before the retailer’s bankruptcy filing in early 2002.
Kmart’s former chairman and CEO Charles C. Conaway and former Chief Financial Officer John T. McDonald were responsible for disclosure that was materially false and misleading.
The SEC’s complaint charges Conaway and McDonald with securities fraud and aiding and abetting securities fraud. It also accuses them of aiding and abetting violations of rules that require publicly traded companies to file quarterly reports and to include material information in the reports so they are not misleading.
After filing for bankruptcy, Kmart had to close about 600 stores, which included the termination of 57,000 Kmart employees and cancellation of company stock.
Kmart at the time valued honesty, integrity and adherence to the highest ethical standards. Ironically honesty being number one, Conaway and McDonald failed to follow the company’s values from their code of ethics. This led to them losing their job, reputation and causing a great deal of hurt to Kmart and its founder.
Conaway and McDonald shouldn’t have given potential investors misleading information about their financial condition. They should have just told the investors the truth about where Kmart stood financially and not lie about it.
The unethical behavior of these two former Kmart executives hurt them in the long run because not only did they go bankrupt and had to close about 600 stores, but also, many of Kmart’s employees lost their jobs and the reputation of the company was ruined.
It’s important to always be loyal to the company you work for and always do the right thing. You don’t want to end up in the middle of a scandal.