campo v sears holdings corp

Case 1:06-cv-04053-LAK Document 5 Filed 07/14/06 Page 1 of 23

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

FRED P. CAMPO, Individually, and On Behalf of All Others Similarly Situated,

Plaintiff,

No. 06 Civ. 4053 (JES)

FIRST AMENDED CLASS ACTION COMPLAINT

V. JURY TRIAL DEMANDED

SEARS HOLDINGS CORPORATION and EDWARD S.LAMPERT,

Defendants.

Plaintiff Fred P. Campo, on behalf of himself and other

attorneys, hereby alleges, upon knowledge with respect to facts concerning plaintiff and

plaintiffs acts and as to all other matters, which generally concern facts not in plaintiffs

possession, upon information and belief as follows:

NATURE OF THE ACTION

1. This is a class action lawsuit asserting claims against defendants Sears

Holdings Corporation ("Sears" or the "Company"), the factual and legal successor to

Kmart Holding Corporation, and Edward S. Lampert ("Lampert"). Plaintiff brings this

class action lawsuit on behalf of themselves and a proposed class of entities and persons

(collectively "Plaintiff'), that purchased Kmart Holding Corporation ("Kmart") securities

on or after May 6, 2003 (when Kmart emerged from bankruptcy) or obtained such

securities as a result of the bankruptcy, and then sold such securities on or before June 4,

2004 (the "Store Sale Date"), when K-Mart announced it would sell up to 24 stores to

Home Depot for up to $365 Million. (May 6, 2003 through June 4, 2004 is the "Class

Period.")


2. Plaintiff, deceived about the true value of their Kmart securities by

Krnart's affirmative misrepresentations and omissions concerning Krnart's business and

prospects, and, in particular, the true value of Kmart's real estate holdings, purchased

Kmart securities on or after the dale Kmart emerged from bankruptcy or obtained such

shares during the bankruptcy and sold them before the Store Sale Date for substantially

less than those securities were worth. Only after the Kmart's announcement on the Store

Sale Date, that Kmart would realize up to $365 Million on the sale of a tiny fraction of its

stores, (24 of Kmart's 1 ,5 13 stores remaining when Kmart exited bankruptcy), did

plaintiff discover the true value of the securities plaintiff had purchased on or after May

6, 2003 or otherwise obtained during the bankruptcy and then sold on the cheap during

the Class Period, as a result of le-mart's misrepresentations and omissions. Only after the

Store Sale Date did the magnitude of the fraud Kinart had perpetrated on plaintiff, and,

consequently, the value of the opportunity of which plaintiff had been wrongfully

deprived, become apparent.

THE PARTIES

3. Plaintiff Fred P. Campo is an individual with a principal residence in

Atlantic County, New Jersey. During the Class Period, deprived of the truth about the

true value of his Kmart shares, plaintiff purchased, and then sold, Kmart shares at a

substantial loss, as measured by the value of Kmart shares on the Store Sale Date. Had

Kmart not deceived plaintiff and others similarly situated, plaintiff would not have sold

those shares in the first place, or sold them at such a wildly inadequate price. Plaintiffs

transactions in Kmart securities are listed on the certification annexed to this Complaint.


4. Defendant Sears is an Illinois corporation with its principal place of

business at Hoffman Estates, Illinois. Sears was formed in 2005 when Kmart 1-loldings

Corporation (the post-bankruptcy successor to Kmart Corporation) purchased Sears,

Roebuck & Co. Sears is the successor in law and in fact to Kmart's debts, obligation and

liabilities. Sears engages in the nationwide retail marketing, distribution and sale of a

broad variety of consumer goods, under brand names such as Craftsman, Kenmore,

Lands Ends DicHard, Martha Stewart Everyday, Joe Boxer, Jaclyn Smith, Sesame Street,

and under the proprietary Krnart label as well. Sears reported net income of $858 Million

for its 2005 fiscal year, on some $55 Billion in revenues.

5. Defendant Lampert is an individual with a residence in Greenwich,

Connecticut. Chairman of Sears's Board of Directors, Lampert is also the Chairman,

Chief Executive Officer, and principal owner of ESL Investments, Inc. ("ESL") a hedge

fund based in Greenwich, Connecticut. Lampert founded ESL in April 1988. Lampert

was previously K.mart's chairman as well as a director of le-mart. Through ESL, Lampert

owned approximately 51.4% of Kmart's stock, during all times material to this

Complaint.

JURISDICTION AND VENUE

6. This Court has jurisdiction over the subject matter of this action because

certain of the claims asserted herein arise under Sections 10(b) and 20(a) of the Securities

Exchange Act of 1934 (the Exchange Act"), 15 U.S.C. 78j(b) and 78t(a), and the rules

and regulations promulgated thereunder, including SEC Rule 1Ob-5, 17 C.F.R. 240.1Ob-

5.

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7. This Court has jurisdiction over the subject matter of this action pursuant

to 28 U.S.C. 1331, because this is a civil action arising under the laws of the United

States.

S. The Court has personal jurisdiction over the defendants. In connection

with the acts and omissions alleged in this Complaint, the Defendants, directly and/or

indirectly, used the means and instrumentalities of interstate commerce, including,

without limitation, interstate telephone communications, the mails, and the facilities f

the national securities exchanges.

9. Venue is proper in this District pursuant to Section 27 of the Exchange

Act, 15 U.S.C. 78aa. Many of the acts and transactions constituting the violations of

law complained of herein, including the dissemination to the public of materially false

and misleading statements in connection with Kmart's bankruptcy, occurred in this

District.

10. Venue is also proper in this District under 28 U.S.C. 1391 because the

defendants engaged in substantial conduct relevant to plaintiffs claims within this

District.

SUBSTANTIVE ALLEGATIONS

Kmart Bankruptcy Background

11. Having experienced a series of substantial business reverses, Kmart and

37 of its United States subsidiaries filed voluntary petitions for reorganization under

Chapter 11 of the federal bankruptcy code on or about January 22, 2002, listing debts of

some $10.34 Billion in their bankruptcy filings.

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12. Lampert arranged ESL's highly discounted buyout of much of Kmart's

bank debt and bond debt during the bankruptcy proceedings. ESL and its affiliates

(collectively "ESL") ultimately obtained a controlling stake in Kmart, America's third-

largest discount retailer, acquiring over 50% of Kmart's common stock for approximately

900 Million.

13. Crucial to Kmart's reconfiguration and revitalization during bankruptcy

was Lampert's scheme to streamline, and ttbIti2e,Ki1th.tS highly Vliibl real estate

holdings and lease rights. Entering bankruptcy, Kmart had approximately 2,114 stores all

across America, many in prime locations, ripe for commercial development. In the

second quarter of Kmart's fiscal 2002, Kmart closed 283 stores, closings the Bankruptcy

Court approved on March 30, 2002. In the first quarter of Krnart's fiscal 2003, Kmart

closed 316 additional stores, closings the Bankruptcy Court approved on January 28,

2003. Once the 2003 store closings were completed, Kmart's stores numbered 1,513.

14. Shepherded quickly through Bankruptcy Court by Lampert, Kmart, which

had operated as a Debtor-in-Possession during its quick journey through bankruptcy, filed

a Plan of Reorganization and related Disclosure Statement on January 24, 2003. Kmart

filed an Amended Joint Plan of Reorganization and related Amended Disclosure

Statement on February 25, 2003 in connection with 1(mart's bankruptcy.

15. Having received the formal endorsement of the statutory creditors

committees, Krnart's Plan of Reorganization, as amended, was confirmed by the

Bankruptcy Court on April 23, 2003.

16, On May 6, 2003, Kmart officially emerged from bankruptcy, becoming a

wholly-owned subsidiary of Kmart Management Corporation. Kniart Management

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Corporation was itself a newly-formed, wholly-owned subsidiary of the then newly-

formed holding company, Kmari. Holding Corporation.

17. Before filing bankruptcy, Kmart securities had traded on the New York

Stock Exchange. On or about June 10, 2003, after Kmart had emerged from bankruptcy,

Kmart began trading on the NASDAQ under the symbol "KMRT."

18. Lampert emerged as 1(mart's chairman, and the owner, through ESL, of

approximately 5 1.4% of Kmart's new lstock. ESL received its ownership stake in the

reorganized Kmart in exchange for pre-petition obligations, shares obtainable upon the

exercise of certain options, and shares obtainable upon conversion of a convertible note

issued to ESL affiliates.

Kmart's Lucrative Store Sales to Home Depot and Sears

19. On or about June 4, 2004, Kmart announced it would sell up to 24 Kmart

stores to Home Depot, for up to $365 Million.

20. On or about June 30, 2004, T(mart announced it would sell up to 54 Kmart

stores to Sears, for up to $621 Million.

21. On or about August 23, 2004, Kmart announced a final agreement for the

sale of 18 stores to Home Depot for $271 Million in cash.

22. On or about September 30, 2004, Kmart announced it had completed the

sale of 50 Kmart stores to Sears for $575.9 Million.

23. Those 68 Kmart stores that Lampert sold represented only a tiny fraction -

approximately 4.49% - off Kmart's real estate assets.


24. Although Lampert's sales of those 68 Krnart stores represented the sale of

only a tiny fraction of Krnart's real estate assets, those sales fetched the astonishing sum

of $846.9 Million.

25. During Kniart's stay in bankruptcy in 2003, however, Kmart's real estate

prospects were reportedly much dimmer. As public articles and other documents reflect,

Kmart seemed to experience much greater difficulty auctioning off the stores it had

closed. In certain strategic locations, such a the metropolitaNew York area, the ftitii

of many closed Kmart stores was uncertain more than half a year after they had been

closed. The New York Times, for example, said this area was saturated with so-called

"big box" stores, such as Target and Costco, accounting for the lack of interest in the

former 1(mart stores.

Kmart Stock Price Soars on News of Sales

26. On June 3, 2004, the day before Kmart announced it would sell up to 24

Kmart stores to 1-Tome Depot, for up to $365 Million, Kmart's stock closed at $54.86.

27. On June 4, 2004, the day IT mart announced its lucrative deal to sell up to

24 Kmart stores to Home Depot for up to $365 Million, Kmart's stock jumped $767, an increase of nearly 14%, to $62.53.

Plaintiffs Sales of Shares

28. During the Class Period, plaintiff sold Kmart shares at an average sale

price considerably lower than Kmart's closing stock price on June 4, 2004.

29. Kmart's announcement of the enormously lucrative store sales to Home

Depot, and then of the similarly highly priced sale of stores to Sears, revealed that

Krnart's real estate assets, and therefore Kmart's stock, was worth a great deal more than

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plaintiff had been led to believe when he purchased their Kn-iart shares and then sold

Kmart shares in reliance on Kmart's financial reports, and other statements and

information disseminated by Kmart, Lampert, and other executives, including, without

limitation, during Krnart's bankruptcy reorganization, all of which reports, statements

and information had painted a deceptively dismal financial picture of Kmart's real estate

and other values.

30. Had plaintiff sold his Kmart shares on the day after the Store Sale Date,

plaintiff would have realized substantially greater value for each share he sold. As the

proximate result of defendants' false and misleading statements and omissions, as

described in this Complaint, plaintiff suffered damages.

Kmart buys Sears

31. On or about November 16, 2004, Kmart and Sears announced an $11

Billion cash-and-stock deal, creating the new company Sears Holdings Corporation.

32. Lampert, through ESL, was on both sides of the KmartlSears deal.

Through ESL, which held 15% of Sears, Lampert was Sears's largest shareholder.

33. The KmartlSears deal closed on or about March 24, 2005. Lampert

became the Chairman of the combined companies, now known as Sears Holdings

Corporation.

False and Misleading Statements

34. Defendants made numerous false and misleading material statements, and

omissions, including, without limitation, during I(mart's bankruptcy reorganization, on

which plaintiff detrimentally relied in deciding to sell their Kmart shares during the Class

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Period at prices substantially lower than full and fair disclosure by defendants would

have produced.

35. Engineering his takeover of Kmart and its undervalued assets for as low a

cost as possible, Lampert had no interest in full and fair disclosure of all material

information about Kmart's assets, especially Kmart's real estate assets. The lower the

disclosed value of Kmart's assets, the lower Lampert's cost of acquiring control of

Krnart, and the greater Lampert's future profit when Kin.rt's true values could be

disclosed and monetized.

36. In late 2004, for example, Louis Taylor, a Real Estate Investment Trust

('RETT") analyst for Deutsche Bank, estimated Kmart's real estate alone as worth up to

$1 52.95 per share, or approximately $16 billion. But, less than two years before Mr.

Taylor's independent valuation of Kmart's real estate values, Krnart had valued all of its

assets at only $16.3 billion.

37. Similarly, in its bankruptcy filings, Kmart listed some $16.3 billion in pre-

bankruptcy assets. But the sale of only 4.49% of Kmart's stores generated the enormous

sum of $846.9 Million, representing an implied value of approximately $17 billion for

Kniart's real estate alone.

38. Nowhere in its Plan of Reorganization and Disclosure Statement, as

amended, or anywhere else, including, without limitation, in connection with statements

made during Kmart's reorganization in Bankruptcy, did K.mart or Lampert suggest, let

alone disclose, that Kmart's real estate assets were worth far more than Kniart had

disclosed.


39. Kmart's Amended Disclosure Statement, filed in connection with Krnart's

bankruptcy reorganization, for example, reflected the net book value of Kmart's real

estate interests (stores, distribution centers, corporate resource center and "other") as

$1,208,392,000 as of April 30, 2003, an average of $798,672.84 per store. In

conspicuous contrast, Kmart's post-bankruptcy sales, not even two years later, of only 68

stores for the total of $846.9 million produces the extravagantly greater average of

$12,454,411.76 per store, an increase of $11,655,738.92 per storrepresriting1,459%

increase per average store value.

40. This large increase in the values of Kmart's real estate and leasehold

interests, during the period from Kmart's emergence from bankruptcy through the Store

Sale Date, is not attributable to any external factors. In fact, to the contrary, interest rates

were generally increasing during that time frame, raising the cost of borrowing for real

estate investments.

CLASS ACTION ALLEGATIONS

41. Plaintiff brings this action on his own behalf and as a class action pursuant

to Rule 23(a) and Rule 23(b) (3) of the Federal Rules of Civil Procedure on behalf of a

class (the "Class") consisting of: all persons and entities who purchased any Kmart

securities on or after May 6, 2003, or obtained such securities as a result of the

bankruptcy, and sold such securities on or before the Store Sale Date, and who were

injured thereby. Excluded from the Class are: (i) defendants; (ii) members of the family

of each individual defendant; (iii) any entity in which any defendant has a controlling

interest; (iv) the officers and directors of Sears and its subsidiaries and affiliates; and (v)

the legal representatives, heirs, successors or assigns of any such excluded party.

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42. Throughout the Class Period, shares of Kmart common stock was traded

actively on the NASDAQ, an efficient market. Throughout the Class Period. Kmart debt

securities were traded on the open market. The members of the Class, as purchasers and

sellers of debt and common and preferred stock securities, are so numerous that joinder

of all members is impracticable. Although the exact number of Class members may only

be determined through appropriate discovery, plaintiff believes that Class members

number in the thousands. Approximately 89 million shares of Kmart stock were issued

and outstanding during the Class Period. There was also approximately $2.1 Billion of

Krnart debt outstanding at the end of the Class Period.

43. Plaintiff's claims are typical of the claims of the members of the Class.

plaintiff and other members of the Class bought and sold their Kmart common stock,

preferred stock, and/or debt securities pursuant to Kmart's bankruptcy reorganization

filings, registration statements or on the open market, and sustained damages as a result

of defendants' wrongful conduct complained of herein.

44. Upon information and belief, thousands of entities and individuals

comprising the Class purchased Kniart shares, and then were fraudulently induced to sell

those I(mart shares at artificially low prices, because of K.mart's and Lampert's false and

deceptive scheme to conceal the Company's true value, including, in particular and

without limitation, the value of Kmart's leasehold and other real estate interests.

45. The members of the Class are so numerous and dispersed throughout the

United States such that joinder of all members is impracticable.

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46. Common questions of law and fact exist as to all members of the Class

and predominate over any questions affecting solely individual members of the Class.

Among the questions of law and fact common to the Class are:

a. Whether Kmart and Lampert engaged in a scheme to conceal the

true value of Krnart's leasehold and other real estate interests;

b. Whether 1(mart and Lampert engaged in a scheme to conceal the

true value of Kmart's debt and equity securities;

C. Whether Kmart's and Lampert's scheme to conceal the true value

of Kmart shares was carried out intentionally with direct knowledge, or at least

recklessly; and

d. Whether the members of the Class have sustained damages and, if

so, what the appropriate measure of damages should be.

47. Plaintiffs claims against defendants are typical of the claims of the

members of the Class. Plaintiff and the Class each sustained damages arising out of the

Defendants' wrongful conduct as detailed herein. Specifically, plaintiffs claims and the

Class's claims arise from the defendants' scheme to illegally conceal Kmart's true value

of the Company by making false and misleading, and incomplete statements, and

omitting to make statements, necessary to provide a full and fair picture of Kmart, its

business, the value of its leaseholds and other real estate interests, and the value of its

stock.

48. Plaintiff will fairly and adequately represent and protect the interests of

the members of the Class. Plaintiff has retained counsel competent and experienced in

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class action lawsuits. Plaintiff has no interests antagonistic to or in conflict with those of

the Class and should be named as a representative for the Class.

49. A class action is superior to other available methods for the fair and

efficient adjudication of this controversy since joinder of all members of the Class is

impracticable. Furthermore, because the damages suffered by individual members of the

Class may in some instances be relatively small, the expense and burden of individual

litigation make it impossible for such class members individually to redress the wrongs

done to them. Also, the adjudication of this controversy through a class action will avoid

the possibility of inconsistent and possibly conflicting adjudications of the claims

asserted herein. There will be no difficulty in the management of this action as a class

action.

50. The names and addresses of the record sellers of Kmart's publicly traded

securities, sold during the Class Period, are available from the Company's transfer

agent(s) and/or from other sources. Notice may be provided to such record owners via

first class mail using techniques and a form of notice similar to those customarily used in

class actions.

LOSS CAUSATION

51. Defendants' fraudulent misrepresentations and omissions concerning

Krnart's asset values, including, in particular, the value of its leaseholds and other real

estate interests, caused the price of Kmart's securities to be artificially deflated when

plaintiff sold those securities and proximately caused plaintiff's damages.

52. As the truth about the value of KmarE, its leaseholds and real estate

interests, and its debt and equity securities was revealed with Kmart's surprising

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announcements of the sales of stores to Home Depot and Sears, the deflation caused by

the defendants' false and misleading statements and omissions was methodically

eliminated from the price of Kmart's securities.

PRESUMPTION OF RELIANCE - FRAUD ON THE MARKET

53. Plaintiff are entitled to a presumption of reliance on defendants' material

misrepresentations and omissions for the following reasons:

a. T(Prt's publicly-traded securities were actively traded in an

efficient market on the NASDAQ during the period in which plaintiff sold Kmart

securities. The average daily trading volume of Kmart shares was more than 654,000

shares during the Class Period, and the total number of shares traded during the Class

Period was 179 Million shares;

b. Kmart regularly filed periodic public reports with the SEC;

C. Kmart regularly communicated with public investors through

established market communication mechanisms, including regular disseminations of

press releases on the major news wire services and other wide-ranging public disclosures,

such as communications with the financial press, securities analysts and other similar

reporting services;

d. The market reacted to public information that Kmart disseminated;

e. Kmart was followed by numerous securities analysts employed by

major brokerage firms who wrote reports which were distributed to [lie sales force and

certain customers of their respective firms. Each of these reports was publicly available

and entered the public marketplace;

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f. The material misrepresentations and omissions alleged herein

would tend to induce a reasonable investor to misjudge the value of Kmart's shares; and

g. Without knowledge of the misrepresented or omitted material facts

alleged herein, plaintiff and other members of the Class sold Kmart securities between

the time defendants misrepresented or failed to disclose material facts and the time the

true facts were disclosed.

54. Plaintiff is also entitled to a presumption of reliance because, as more fully

alleged above, defendants failed to disclose material information regarding Kniart's

business, financial results, leaseholds and other real estate interests, and business

prospects, throughout the Class Period.

NO SAFE HARBOR

55. As alleged herein, Lampert acted with scienter in that he knew, at the time

they were issued, that the public documents and statements issued or disseminated in the

name of Kmart were materially false and misleading or omitted material facts; knew that

such statements or documents would be issued or disseminated to the investing public;

knew that members of the investing public were likely to reasonably rely on those

misrepresentations and omissions; and knowingly and substantially participated or was

involved in the issuance or dissemination of such statements or documents as primary

violations of the federal securities law.

56. As this Complaint sets forth elsewhere in greater detail, Lampert

participated in and knew of the fraudulent scheme alleged herein, by virtue of his receipt

of information reflecting the true facts regarding Kmart; his control over, and/or receipt

of Kmart's allegedly materially misleading misstatements; and/or his association with

ILI


Kmart, all of which made Lampert privy to confidential proprietary information

concerning Krnart that defendants used to misrepresent financial results, and which the

defendants caused or of which defendants were informed.

57. With respect to non-forward-looking Statements and/or omissions, the

defendants knew and/or recklessly disregarded the falsity and misleading nature of the

information which they caused to be disseminated to the investing public.

58. Defendants' false and misleading statements and omissions do not

constitute forward-looking statements protected by any statutory safe harbor. The

statements alleged to be false and misleading herein all relate to facts and conditions

existing at the time the statements were made. No statutory safe harbor applies to any of

Kmart's or Lampert's material false or misleading statements.

59. Alternatively, to the extent that any statutory safe harbor is intended to

apply to any forward-looking statement pleaded herein, the defendants are liable for the

false forward-looking statement pleaded because, at the time each forward-looking

statement was made, the defendant making the statement knew or had actual knowledge

that the forward-looking statement was materially false or misleading, and the forward-

looking statement was authorized and/or approved by a director and/or executive officer

of Kmart who knew that the forward-looking statement was false or misleading. None of

the historic or present tense statements made by the defendants was an assumption

underlying or relating to any plan, projection or statement of future economic

performance, as they were not stated to be such an assumption underlying or relating to

any projection or statement of future economic performance when made. Nor were any

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of the projections or forecasts made by the defendants expressly related to or stated to be

dependent on those historic or present tense statements when made.

COUNT!

Section 10(b) of the Exchange Act and Rule 10b-5(a) (b) and (c) Against Sears and Lampert

60. Plaintiff repeats and realleges each and every allegation set forth above as

if fully set forth herein.

61. Plaintiff brings this Count pursuant to Section 10(b) of the Exchange Act

and Rule I Ob-5(a), (b) and (c), against defendants.

62. Throughout the Class Period, defendants directly and indirectly, by use of

the means or instrumentalities of interstate commerce, the mails, and/or the facilities of a

national securities exchange:

a. Employed devices, schemes, and artifices to defraud;

Made untrue statements of material fact and/or omitted to state

material facts necessary in order to make statements made, in light of the circumstances

under which they were made, not misleading; and/or

C. Engaged in acts, practices, and a course of conduct that operated as

a fraud or deceit upon plaintiff and others similarly situated in connection with their sales

of all Kinart securities.

63. Defendants made material misrepresentations and/or omissions knowingly

and/or in reckless disregard for the truth, with the purpose and effect of misleading the

investing public with respect to Kmart's true financial condition and performance and

establishing and confimiing the artificially depressed price of Kmart's publicly traded

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securities. In particular, Kmart's initially filed Plan of Reorganization and Disclosure

Statement, and other statements, written and oral, during Kmarts bankruptcy

reorganization, did not reflect the true and accurate values of Kmart's assets, especially

Kmart's real estate assets. Kmart's Amended Disclosure Statement did not correct, but

rather compounded, that deception. Kmart's Amended Disclosure Statement reflected the

net book value of Kmart's real estate interests (stores, distribution centers, corporate

resource center and "other") as $1,208,392,000 as of April 30, 2003, an average of

$798,672.84 per store. However, in conspicuous contrast, Kmart's post-bankruptcy sales,

not even two years later, of only 68 stores for the total of $846.9 Million produces the

extravagantly greater average of $12,454,411.76 Million per store, an increase of

$11,655,738.92 per store, representing a 1,459% increase per average store value. No

external justification exists for that sudden postbankruptcy increase in average store sale value.

64. Specifically, defendants made false and misleading material

misrepresentations and omissions in failing to disclose the true value of Kmart's leaseholds

and other real estate interests. In this manner defendants intentionally, knowingly, and

recldessly deceived plaintiff, the Class and the investing public into assigning a much

lower value to T(ma.rt's leaseholds and real estate interests than those leaseholds and

interests actually had, and defendants only disclosed the true value of those leaseholds and

real estate interests when defendant announced the potential sale of stores to Home Deport

on the Store Sale Date.

65. Defendants used or engaged in devices, schemes, artifices, practices

and/or courses of conduct knowingly and/or in reckless disregard for the truth, with the

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purpose and effect of misleading the investing public with respect to Kmart's true financial

condition and performance and establishing and confirming the artificially depressed price

of Kmart's publicly traded securities.

66. Defendants knowingly or in reckless disregard for the truth employed

devices, schemes, artifices to defraud, and/or engaged in acts, practices and/or courses of

business, with the purpose and effect of misleading the investing public with respect to

Kmart's true financial condition and performance, and establishing and confirming the

artificially depressed price of Kmart's publicly traded securities.

67. Defendants carried out a plan, scheme and course of business that was

intended to and did deceive the investing public, including plaintiff and other members of

the Class, as alleged herein, artificially depressed and maintained at that artificially

depressed market price Kmart's publicly traded securities; and induced plaintiff and other

members of the Class to sell or otherwise dispose of I(mart's publicly traded securities at

artificially depressed prices.

68. By virtue of the foregoing, Defendants violated Section 10(b) of the

Exchange Act and Rule lOb-5(a), (b) and (c).

69. As detailed herein, plaintiff and the other members of the Class have

suffered damages because, in reliance on the integrity of the market, they sold Kmart

securities at artificially depressed prices.

70. Plaintiff and the other members of the Class would not have sold Kmart

securities at all, or, in any event, at the artificially depressed prices at which plaintiff and

the Class sold those securities, had they known that the market prices of those securities

were artificially deflated by the fraudulent conduct alleged herein.

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COUNT II

Section 20 of the Exchange Act Against Lampert

71. Plaintiff repeats and realleges each and every allegation set forth above as

if fully set forth herein.

72. Plaintiff brings this Count on behalf of itself and the Class under Section

20 of the Exchange Act against defendant Lampert.

73. As detailed above, primary defendant Kmartviolated Section 10(b) of the

Exchange Act, and violated Rule I Ob-5(a),(b), and (c) through Kniart's knowing and/or

reckless dissemination of materially false and misleading statements, and/or through its

uses of devices, schemes, artifices, practices and/or courses of conduct that operated as a

fraud on the investing public.

74. Defendant Lampert possessed, directly or indirect, supervisory power to

direct and control Kmart's management and policies, including, without limitation, Kmart's

management of, and policies concerning, Kmart's financial reporting. Lampert was

therefore a controlling person within the definition and meaning of Section 20(a) of the

Exchange Act throughout the Class Period.

75. By virtue of his direct and substantial managerial and operational control

of Kniart, and his systematic involvement in the fraudulent activities that this Complaint

describes, Lampert had the ability and authority to influence the particular transactions

giving rise to those fraudulent activities, to prevent the issuance of the false and misleading

statements and omissions described in this Complaint, and to correct them once they were

made.

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76. Not only did Lampert have the ability and authority to influence the

particular transactions giving rise to the fraudulent acts and omissions described in this

Complaint, but Lampert was a culpable participant in the primary violations. Lampert

acted knowingly and intentionally in participating in, and authorizing, for example, the

creation, approval and dissemination of false and misleading valuations of Kmart's assets,

including, without limitation, Kmart's leasehold and other real estate interests during

Kmart's bankruptcy and during the Class Period.

77. As a "controlling person" within the definition and meaning of Section

20(a) of the Exchange Act, and having been a culpable participant in the fraudulent acts

and omissions described in this Complaint, Lampert is liable to plaintiff and the other

members of the Class for any and all damages they have suffered as a result of the fraud

this Complaint describes, under Section 20(a) of the Exchange Act.

PRAYER FOR RELIEF

WHEREFORE, plaintiff demands judgment on behalf of himself and the Class as

follows:

A. Awarding plaintiff damages under the federal securities laws in an amount

to be determined at trial, together with prejudgment interest at the maximum rate

allowable by law;

B. Awarding plaintiff punitive or exemplary, damages in an to be determined

at trial;

C. Awarding plaintiff the costs of this suit, including reasonable attorneys'

fees and other disbursements; and

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D. Awarding plaintiff such other and further relief as this Court may deem

just and proper.

JURY DEMAND

Plaintiff demands a trial by jury.

Dated: July 14, 2006

FARUQI & FARUQI, LLP

By: bjL (rvL; /1-s J Nadeern Faruqi (NF-1 84)

320 East 39th Street New York, New York 10016 Tel: 212-983-9330 Fax: 212-983-9331

GARD& NOTTS, LLP -

By:4 \ ( Ja1es S. Notis'441

440 Iv Avenue, Suite 110 Englew Cliffs, New Jersey 07632 Tel: 201-567-7377 Fax: 207-567-7337

Attorneys for Plaintiff


CERTIFICATE OF SERVICE

JAMES S. NOTIS hereby certifies that on July 14, 2006, he caused a true and

correct copy of the foregoing to be served by First Class U.S. Mail on counsel for all

defendants as follows:

Paul Vizcarrondo, Jr. WACUTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, New York 10019-6150

Counsel for defendants Sears Holdings Co , oration and Edward S. Lampert

Jn-S)Notis (119) GARDY & NOTIS, LLP 440 Sylvan Avenue, Suite 110 Englewood Cliffs, New Jersey 07632 Tel: 201-567-7377 Fax: 201-567-7337

campo v sears holdings corp

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