Sears is fined $60 million; Company pleads guilty to defrauding patrons with credit card debts; Legal matters


BOSTON -- Sears, Roebuck & Co., the largest U.S. department-store company, pleaded guilty to criminal fraud yesterday and was ordered to pay a record $60 million fine for illegally collecting credit card debts from bankrupt customers.

The one-count guilty plea, entered in U.S. District Court in Boston, ends a two-year federal investigation of the company's Sears Bankruptcy Recovery Management Services unit. Sears admitted that it failed to file with bankruptcy courts debt-collection agreements signed by credit-card customers who had sought protection from creditors.

In imposing the $60 million fine, the largest ever in a bankruptcy-fraud case, Judge Douglas P. Woodlock said the Sears offense involved "serious criminal conduct" that "went to the heart of the bankruptcy process."

Sears said Feb. 9 that it had agreed to the plea and fine in negotiations with U.S. Attorney Donald Stern, and Woodlock later accepted the plan.

In the past two years, Sears has paid more than $281 million to settle civil suits by cardholders and shareholders, and civil fines to 50 state attorneys general in connection with the scheme. The Hoffman Estates, Ill.-based retailer admitted using "reaffirmation agreements," which it did not file with the bankruptcy courts, to force about 180,000 customers to promise to repay their debts to Sears.

"We are very happy to have this issue finally and completely concluded," said Sears spokeswoman Janice R. Drummond. "It is the end of the reaffirmation matter. There are no outstanding issues."

Sears has taken a $475 million pretax charge to cover the cost of the fines, settlements and expenses related to the unfiled agreements.

U.S. prosecutors began investigating Sears in early 1997, after customers complained they had been pressured to pay credit-card balances though the debts had been wiped out in bankruptcy court. Prosecutors said the company immediately cooperated.

Pub Date: 2/20/99

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