Two former Kmart vice-presidents are facing serious fraud charges, following an FBI investigation into the troubled US retailer's finances.
Enio A 'Tony' Montini Jr and Joseph Hofmeister have been charged with securities fraud, making false statements to the Securities and Exchange Commission and conspiracy to commit those offences.
If convicted, the pair face a maximum 10-year jail sentence and US$1 million (£626,500) fine.
The indictment alleges Montini and Hofmeister made false statements to Kmart's accounting and auditing divisions, which resulted in the company filing an SEC quarterly report that overstated its operating profits by US$42.3 million (£26.5 million).
The arrests are the first fruits of an ongoing government probe into the Michigan-based retailer's financial collapse last January. More senior executives are likely be called to account.
Kmart is battling to recover, and hopes to emerge from Chapter 11 protection towards the end of next month.
A statement issued by the defendants said the charges were 'wrong and unjust'.