Civil trial underway for ex-Kmart CEO

Ann Arbor, Mich. The civil trial for the ex-Kmart chief who was accused by the Securities and Exchange Commission of misleading regulators and investors is underway in Michigan.

Charles Conaway, who served as Kmart’s chairman and CEO from May 2000 to March 2002 has been accused by U.S. regulators of lying to investors and directors about the health of the company in 2001. Specifically, he is accused of failing to disclose the true nature of Kmart's finances in the months leading to a bankruptcy filing in January 2002.

Conaway could be fined and barred from serving as an officer or director of a public company if the SEC wins the civil trial.

According to a report by the Associated Press, there is no dispute that Kmart was under a severe cash crunch after acquiring $850 million in excess inventory. The SEC blames Conaway for Kmart's failure to disclose the true extent of its troubles in a quarterly filing with regulators and on a conference call with stock analysts.

"Conaway was the leader who set management on the path of lies and concealment," SEC lawyer Alan Lieberman said in a court document.

Conaway's lawyer, Scott Lassar, said he had "nothing whatsoever to do" with the management-analysis section of Kmart's filing with the SEC.

"Conaway's job was running the company," not preparing reports for regulators, Lassar said in a court document ahead of trial.

Kmart's former CFO John McDonald Jr., recently agreed to pay a $120,000 penalty to settle the SEC's lawsuit against him. He and former company directors could be called as witnesses against Conaway.