The verdict in the civil fraud trial followed 10 days of testimony in federal court in Ann Arbor. The case was a fresh look at Charles Conaway's brief tenure and the desperate scramble to keep Kmart afloat before one of the largest bankruptcies in retail history.

The Securities and Exchange Commission accused him of failing to disclose that the retailer was delaying payments to suppliers to save cash. The trial centered on a conference call with analysts and Kmart's quarterly report to regulators, both in November 2001.

"It was a clean sweep," SEC trial lawyer Alan Lieberman said of the verdict.

"It is never enough for the numbers to be right. For the average investor, the numbers being right do not tell the whole story," he said. "They need to know the material information that management knows. The foundation of the markets is full and honest disclosure."

The SEC blamed Conaway for not sharing details in the report's management-analysis section. He testified that he didn't write it, didn't read it and relied on his chief financial officer and others.

During a call with Wall Street analysts, Conaway said sales were poor - and the stock took a 15 percent hit - but he didn't talk about the vendor strategy or an ill-timed purchase of $800 million in merchandise.

He testified that Kmart had $1 billion in cash and credit when the call was made and the quarterly report was filed. Conaway said it "never" crossed his mind that he was withholding critical news.

The jury, however, found that he acted "with intent to defraud or with reckless disregard for the truth."

Despite Conaway's testimony, the jury found that delaying payments to vendors was a "material liquidity deficiency" affecting Kmart's finances and should have been publicly reported.

Conaway's lawyer, Scott Lassar, said they were disappointed with the verdict and would pursue an appeal.

U.S. Magistrate Judge Steven Pepe will handle the penalty phase. Conaway, 48, could be fined and banned from serving as an executive or director at a public company.

He had a successful career in the drugstore industry when he agreed in 2000 to try to turn around Kmart, which was no match for discount rivals Wal-Mart Stores Inc. and Target Corp. Conaway was gone less than two years later.

Kmart emerged from Chapter 11 bankruptcy as a smaller company and now is part of Sears Holdings Corp., based in Hoffman Estates, Ill.

The lawsuit against Conaway and his former CFO, John McDonald Jr., was filed in 2005, three years after the bankruptcy.

Ronald Kiima, formerly an assistant chief accountant at the SEC, said when a company fails "there's a lot of `What did you know and when did you know it?'"

"If you don't give the sausage-making of what happened during a quarter, that could be an issue," Kiima said in an interview. "For a CEO to say he didn't lay eyes on the report is pretty damning."

Shortly before trial, McDonald agreed to pay $120,000 to settle the SEC's lawsuit against him. He does not believe he defrauded anyone but said he wanted to move on.