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A Twitter Army Of Aggrieved Shareholders Claim They’ve Been Taken Advantage Of In The J.C. Penney Bankruptcy Proceedings By A ‘Rigged System’


The pandemic has magnified the chasm between the uber-wealthy and the average American. People were told to stay at home and businesses deemed nonessential were ordered to close down. Multibillionaires, such as Amazon CEO Jeff Bezos and top executives of Facebook, Google, Apple and other online juggernauts, became even more fabulously rich during this time. As their fortunes skyrocketed, over 65 million Americans filed for unemployment since the onset of Covid-19.

Economists point to something called a “K-shaped” recovery. Dispensing with jargon, this means that the rich will get richer, exemplified by the upper trajectory of the letter “K.” The sharp downward slope represents the rest of the people. Instead of seeing better days ahead, they’re not recovering and, in fact, spiraling further into financial trouble and job insecurity.

The juxtaposition between the wealthy, professional classes and regular hard-working people is highlighted in the fall-from-grace, behind-the-scenes story of the once-heralded retailer J.C. Penney, which filed for bankruptcy in May—during the early days of the Covid-19 virus outbreak. It’s a tale that captures the unfairness and inequity built into our generally accepted business practices. 

There’s an emerging growing army of scrappy, determined J.C. Penney stock shareholders, long-term employees and retirees who vehemently believe they’ve been ignored and mistreated by the bankruptcy system. They vociferously argue that a small class of professionals, big-money institutions and players exert an oversized advantage in the proceedings—to the detriment of unsophisticated, relatively small shareholders, who are unfamiliar with the machinations of bankruptcy hearings. 

The iconic 118-year-old retailer was started by James Cash Penney, who subscribed to his “Golden Rule” of fair business dealings, including “to seek to do best for ourselves by doing right for all concerned.” Like a Horatio Alger success story, Penney grew his company from a small store in Kemmerer, Wyoming to become a household name, major nationwide shopping retailer and sought-after anchor at big shopping malls. The company survived the Great Depression, World Wars and the financial crisis, but just couldn’t contend with the confluence of aggressive competitors, such as Walmart, Target, online juggernaut Amazon, and the forced closures of nonessential business—in the wake of the coronavirus.  

The company was also saddled with debt, spent the last decade with a continual turnover in CEOs, new designs, initiatives and rebrands that didn’t resonate with customers and an overall decline in the department store sector. The once-beloved retailer has been unprofitable since 2010, with net losses of $4.5 billion. Covid-19 was the last straw that broke the company’s back.

An intrepid group of retirees, stockholders and day traders have waged an online social media campaign to gain attention to their plight. They levied accusations that J.C. Penney, its creditors, hedge fund investors, law firms, trustees and real estate mavens are taking advantage of the situation and may potentially reap substantial monetary windfalls, while the ordinary shareholder is run roughshod over with their holdings wiped out. 

They question the manner in which transactions have been conducted and assert the system is rigged against them. There are complaints of cronyism and foul play. Their adversaries are sophisticated parties who attended the most prestigious universities, law and graduate schools. They’ve tweeted about family in-laws on opposing sides of the disputes questioning if any collusion is going on. It’s pointed out that all of the players are old hands at the bankruptcy game. There’s a belief that a decision has been predetermined and they’re helplessly watching as others get rich. 

Allegations have been made that there is a built-in systemic imbalance between the average small shareholders and the interest of lenders, sophisticated money managers, real estate mall moguls—represented by the best, most respected and powerful law firms—and investment banks. The shareholders were provided a comparably modest amount of money for their representation and had a small Texas-based law firm representing their interests. It’s a David vs. Goliath fight, but this David didn’t even have a slingshot.

The army of aggrieved are asking for fairness. They point out that J.C. Penny CEO Jill Soltau received a $4.5 million bonus and her top three executives, including the chief financial officer Bill Wafford, chief merchant officer Michelle Wlazlo and chief human resources officer Brynn Evanson, each received a $1 million payout while the shareholders may lose everything.   

At the onset of the bankruptcy, J.C. Penney had about 95,000 workers. While the lenders, creditors and other interested parties paid lip service to saving jobs, as time wore on, the number of employees dramatically declined to roughly 60,000—and is likely to fall further. The laid-off workers were tossed into the worst job market in modern history without any lush bonuses.  

The company says that keeping leadership in place is critical and its last-minute bonuses are “in line with those of other companies in similar situations.” J.C. Penney also said executives will have to repay 80% of the bonuses if he or she is fired for “cause” or resigns without “good reason” before the end of next January. The group wonders if this arrangement prompts the CEO and executives to do whatever it takes to hold onto their lucrative jobs.  

Some say that the CEO and management were open to lopsided deals that disadvantaged J.C. Penney shareholders, as they wanted to hold onto their jobs. As there was and continues to be a retail tsunami, in the wake of Amazon’s dominance and potential customers concerned about shopping in-person during Covid-19, it’s reasonable for the social media army to conjecture that the J.C. Penney executives wouldn’t have too many offers for other jobs and needed to tightly hold onto their jobs. Neiman Marcus, J. Crew, Brooks Brothers and a slew of other retailers also filed for bankruptcy protections.

Niko Celentano, chairman of the J.C. Penney Ad Hoc Equity Committee, said, “J.C. Penney filed for bankruptcy with no short-term debt due and $500 million in cash,” which runs counter to the arguments that the retailer needed a quick fire sale or large cash infusion. Celentano maintains that the bankruptcy—and subsequent carving up of the company into two entities—was erroneously “based on forecasts from [its] advisors stating [the company] would run out of cash by July.” He added, “The lenders through the predatory terms of the DIP loan have been in control of this bankruptcy from the start. All for a loan that was never needed. The company currently sits on $1.343 billion in cash. This company should restructure as a going concern, not sell its assets off in the middle of a pandemic at pennies on the dollar.” 

Celentano went on to further state, “This started with me fighting for my own investment. Now, we’re fighting on behalf of over 1,400 shareholders, as well as current and former employees that stand to be wiped out financially. After speaking personally with hundreds of them, I feel the weight on my shoulders and it’s what drives me to continue to fight every day. We will fight to make this right on behalf of all of them.” 

Tweet storms from other aggrieved shareholders referenced that the company had sufficient funds to weather the storm and wait for an improvement in the economy, instead of making a fire sale. The online army contends that the management of J.C. Penney panicked and embraced onerous terms from creditors and other entities involved with the bankruptcy process too quickly. They contend management capitulated to their creditors instead of pursuing other options, such as finding white-knight suitors, selling non-performing locations or conducting liquidation sales. 

The outcome, pending a recent court appeal, looks like the company will be divided into two separate entities. One will run the retail department store chain and the other will have control of the real estate. J.C. Penney is unique in that it owns a lot of the property in which the stores are built upon. The new owners of the property intend to roll them up into a real estate investment trust (REIT) and take it public. Getting the property at a fire-sale price could set up the new REIT to become a financial bonanza. 

There’s speculation Amazon and others major retailers may rent the former store sites and use them as distribution and fulfillment centers. Commercial-backed REITS aren’t expected to do well, due to the remote-work trend, and large office space leases won’t be in demand. However, distribution and warehousing space for Amazon and other online stores is predicted to be in big demand and the REIT is likely to garner the interests of investors.

The online army is pleading for the court to take all of this into account and act fairly. This vocal group consists of a wide variety of different people. There is a contingent of day traders who purchased shares in J.C. Penney at penny stock prices—this isn’t meant as a pun, the share price trading under a dollar is referred to as “penny stocks” in Wall Street parlance—wagering that the price would shoot up higher, as the company was always known for its integrity, honesty and reputation as a family-oriented place to shop for good values. 

These traders seem to be part of one of the wild trends that have emerged during the pandemic. In between jobs or working from home, thousands of people who never thought about investing in the stock market started trading stocks. Dave Portnoy, the founder of Barstool Sports, was the high-profile champion of this rapid trading movement, saying, “Stocks only go up!” Robinhood, a trading app that attracted hordes of day-trading Millennials, saw its business boom. 

However, there is a downside. A young stock trader on Robinhood’s platform thought he lost $700,000 and killed himself. Trading stocks is not easy and it’s not a get-rich-quick scheme. Many people who dived into the choppy waters may not have realized the risks involved. They most likely did not know that when they buy stocks in a company that files for bankruptcy, the stockholder is the first one to get wiped out. There is a long list of creditors, lenders, bond holders and others who have claims to any monies available before the stockholder. You have to wonder if there were compliance professionals overseeing this type of trading.

Rebecca Moore is the CEO and owner of a small business, Heard to Word Services, that helps the hearing-impaired by creating live captioning for college students. Moore shared, “When Covid-19 hit, the students were sent home and schools were not prepared to deal with the online format and I lost my business—except for one class, which happened to be pertaining to trading. I thought this could be a way that, as a single mom, I could pay the rent and keep my kids fed. I had to live off my savings during Covid-19 and really depended on my trading income to help make ends meet.”

Moore speaks of her emotional ties to the investment, “When I invested in J.C. Penney, it was nostalgic, in that I grew up going to J.C. Penney. I was investing in the American Dream, as lived out by James Cash Penney and the principles that he believed in that I raise my children by—the Golden Rule.”

“I voraciously studied the real estate value of J.C. Penney on a daily basis and began putting together information about Brookfield Properties, its mixed-use development expertise and strong relationship with Amazon. Moreover, when news hit about Amazon scoping out J.C. Penney, it made sense. I knew Amazon needed brick and mortar for ‘last mile’ and [was] getting into pharmacy and grocery, all of which would fit nicely into Brookfield’s mixed-use expertise.

There are long-term shareholders who believed in the company and felt it could turn itself around. They held on a little too long. The company didn’t turn around and they will likely lose everything. Workers who have a 401(k) with J.C. Penney stock saw their holdings plummet and may soon go down to zero. There are heartbreaking stories of people losing thousands to millions of dollars.

The pension for J.C. Penney workers will be taken over by a government agency, Pension Benefit Guaranty Corp. There is fear among the pensioners that the benefits and payouts may be less than what they had planned for their retirement.

One of the positive and surprising effects of the pandemic is that, as a society, we are taking a new cold, hard look at many of the traditional ways we do things—such as having to work in an office building, voting in person and going to classrooms to learn. Also, there’s a movement to address inequities that advantage the privileged and powerful to the detriment of everyone else. This may be the time to take a closer look at how companies can file for bankruptcy and lay off tens of thousands of workers, while the CEO, top-echelon executives and inside players reap outsized multimillion-dollar gains. 

J.C. Penney declined to comment beyond the hearing recordings and filings available on the company’s Prime Clerk site.





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