A group of creditors of Toys “R” Us has alleged fraudulent behavior by some of the retailer’s top executives as it neared bankruptcy.
On Thursday, the Tru Creditor Litigation Trust filed suit in New York Supreme Court, alleging that former senior leaders and corporate directors at the company pocketed a collective $16 million days before Toys “R” Us entered into Chapter 11 bankruptcy protection in September 2017.
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According to the 111-page complaint, then-chairman and CEO David Brandon as well as other execs took home bonuses that advanced their base pay by 75% — a plan that was allegedly arranged a few months before the bankruptcy, in July 2017. (Brandon himself was said to have secured $2.8 million.)
The suit also referenced an email in which Brandon allegedly said, “We have to be creative and design something that works for us” — in reference to the existing executives’ salaries. Other leaders who were named as defendants include former Toys “R” Us directors Joshua Bekenstein, Paul Raether and Wendy Silverstein as well as ex-EVP and global chief merchant Richard Barry.
“Toys ‘R’ Us is yet another unfortunate example of corporate greed resulting in executives and private equity firms benefiting at the expense of others,” Greg Dovel, an attorney for the litigation trust, said in a statement. “The defendants prioritized their own financial wellbeing, as well as the financial wellbeing of three private equity companies, ahead of the company that they were entrusted to run.”
The Tru Group is seeking punitive damages and demands a jury trial. FN has reached out to Toys “R” Us for comment.
Private equity firms KKR, Bain Capital and Vornado Realty Trust acquired Toys “R” Us in 2005 for about $6.6 billion and saddled the toy maker with $5 billion in debt before it liquidated its assets in the United States and shut down operations in the country two years ago. Experts widely agree that private equity ownership and an unworkable debt load were leading factors in its ultimate curtain call.
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