Sears Bankruptcy Recovery Management Services. Inc. has agreed to plead guilty to one count of bankruptcy fraud and pay a $60 million fine, the largest ever paid in a bankruptcy fraud case.
The firm, a subsidiary of Sears, Roebuck and Co., was accused yesterday in a criminal information of conducting a scheme to defraud bankruptcy debtors. The one-count information, filed by Donald K. Stern, U.S. Attorney for Massachusetts, alleges that Sears lured bankrupt credit card debtors into reaffirmation agreements that would have required they pay existing debts. However, such debts are normally discharged following Chapter 7 bankruptcy filings.
From 1985 to 1997, Sears lead debtors to believe that the agreements would be filed with the court, and that they were binding contractual obligations, according to the information. However, the agreements were never filed, it continued.
In a related development, Sears has settled civil charges stemming from its bankruptcy actions, agreeing to file all future reaffirmation agreements with the court. The firm has paid $180 million in restitution to 180,000 debtors, and $40 million in fines to 50 state attorneys general, according to Stern’s office.
Sears said the $60 million fine will not hurt its quarterly earnings. The firm took a pre-tax charge of $475 million against earnings in the second quarter of 1997 for refunds, penalties and administrative expenses relating to the reaffirmation case.
