Former Kmart CEO to settle SEC case for $5.5 mil.

DETROIT — The former chief executive of Kmart will drop his appeal of a $10 million-plus penalty and pay $5.5 million to settle years of litigation over the retailer's fragile health before it filed for bankruptcy in 2002, court documents show.

A jury found Charles Conaway liable last year for misleading the company's investors, and a federal judge subsequently ordered him to pay millions.

But Conaway and federal regulators now have reached a deal in which he will drop his appeal and close the case with a $5.5 million payment. On Wednesday an appeals court returned the case to federal court in Detroit to consider the settlement.

A spokesman at the Securities and Exchange Commission and Conaway's lawyer did not immediately respond to messages seeking comment.

The SEC had filed a lawsuit in 2005, accusing Conaway of failing to tell investors that Kmart was delaying payments to suppliers to save cash, thereby masking the deteriorating financial health of the company. A jury agreed after a 10-day trial in 2009.

The case centered on Conaway's call with Wall Street analysts in November 2001 and Kmart's quarterly filing with regulators.

Conaway said sales were poor but he didn't talk about the vendor strategy or an ill-timed purchase of $800 million in merchandise. He testified that it never crossed his mind that he was withholding critical information.

After one of the largest bankruptcy reorganizations in retail history, Kmart emerged as a smaller company and is now part of Sears Holdings Corp., based in Hoffman Estates, Ill.