Reagan's Former Budget Director To Be Facing Fraud Charges

March 22, 2007
Ex-Chief of Collins & Aikman Is Said to Be Facing Indictment
By NICK BUNKLEY

DETROIT, March 21 — David A. Stockman, a former congressman who served as President Ronald Reagan’s first budget director, is expected to be indicted on charges of accounting fraud related to his role as chairman of an auto parts supplier, people with knowledge of the matter said Wednesday.

An indictment against Mr. Stockman, who left the company, Collins & Aikman, five days before it filed for bankruptcy protection in 2005, could be announced as soon as next week, people with knowledge of the matter said. They spoke on condition of anonymity because the investigation, by the office of United States Attorney Michael J. Garcia in Manhattan and United States postal inspectors, was continuing.

The Securities and Exchange Commission also has been investigating Collins & Aikman and is expected to file a civil complaint against Mr. Stockman regarding the same accounting issue, one of these people, a law enforcement official, said.

The other individual, someone with knowledge of Mr. Stockman’s defense strategy, said Mr. Stockman believed that an indictment would be an “overcriminalization of accounting judgments.”

The government’s investigation into Collins & Aikman and Mr. Stockman centers on how revenue was reported in the financial statements from rebate programs with suppliers and whether shareholders were properly apprised of real estate transactions made by Mr. Stockman during acquisitions of other parts suppliers.

The S.E.C. has been looking into whether Mr. Stockman hid the company’s deteriorating financial condition from investors.

Other officers and managers who served under Mr. Stockman could also face charges, these people said. It is not clear whether any of those officers still work for the company. A spokesman, David Youngman, noted that there has been “significant turnover in our management team” since Mr. Stockman left.

Lawyers for Mr. Stockman, 60, met with authorities last week in Manhattan but failed to dissuade them from pursuing criminal charges, the law enforcement official said. The grand jury indictment and that meeting were first reported Wednesday by The Washington Post.

Investigators declined to comment about the case; Mr. Stockman’s lawyer, Elkan Abramowitz, declined to make a statement.

The person with knowledge of Mr. Stockman’s defense said Mr. Stockman planned to aggressively fight the charges. He disputes the assertion of the prosecutors that he engaged in fraudulent deals to increase income, this person said.

A major part of Mr. Stockman’s defense is that he, like other investors, lost large amounts of money when Collins & Aikman sought bankruptcy protection, because he did not sell his shares after board members forced him out in May 2005.

Mr. Stockman came to Collins & Aikman in 2002, shortly after Heartland Industrial Partners, a buyout firm in Greenwich, Conn., that he co-founded in 1999, bought a controlling stake in 2001 for $260 million.

Under Mr. Stockman’s leadership, Collins & Aikman expanded rapidly by acquiring other businesses, but it ultimately ran out of money as sales slowed for the automakers that bought its instrument panels, cabin modules and floor and acoustic systems.

In the 1980s, Mr. Stockman was President Reagan’s budget director, promoting supply-side economic policies known colloquially as Reaganomics. He nearly lost his job after privately expressing doubts about the policies to a writer for The Atlantic Monthly magazine; the article prompted Reagan to, in his words, take Mr. Stockman “to the woodshed.”

Mr. Stockman’s political career began in 1977 when he was elected by his home state, Michigan, to a seat in the House of Representatives.

Collins & Aikman, based in the Detroit suburb of Southfield, has closed several factories since filing for reorganization and is seeking buyers for most of its assets. In January, its chief executive, Frank E. Macher, resigned to make way for a new management structure.

The company is trying to avoid a fine by the S.E.C. for the accounting issues under investigation.

“The company has fully cooperated in the government’s investigation since its inception,” Mr. Youngman, the company spokesman, said.