Washington Post - March 26, 2007
Ex-Reagan Budget Director Charged By Carrie Johnson Washington Post Staff Writer
Federal prosecutors announced conspiracy and securities and bank fraud charges this morning against Reagan-era budget director David A. Stockman, accusing the former Republican lawmaker of misleading investors about the finances of a troubled Michigan auto parts company.
Stockman, 60, surrendered to authorities early today and appeared before a federal magistrate judge in Manhattan this afternoon. He entered a plea of not guilty to the charges and was released on a $1 million bond.
The grand jury indictment includes allegations that Stockman engaged in securities fraud and made overly optimistic statements to investors about his company's financial prospects. The charges are conspiracy, securities fraud, bank fraud, and obstruction of the SEC investigation.
Stockman is charged with three other people, including former finance chief J. Michael Stepp, accounting expert David R. Cosgrove and another employee, Paul C. Barnaba. They all pleaded not guilty and were released on bail.
In interviews, Stockman has vigorously denied the accusations, which carry maximum prison terms of five or 10 years apiece. After his court appearance today, he again denied doing anything illegal and said he had been trying to save the company from "a very dire circumstance."
The charges stem from Stockman's tenure as board chairman and chief executive of Collins & Aikman, which at one point equipped 90 percent of the vehicles manufactured in North America with dashboards and floor mats. Squeezed by the nation's three largest automakers, the company filed for bankruptcy protection in May 2005, a few days after board members pressured Stockman to resign.
Stockman and defense lawyer Elkan Abramowitz repeatedly met with government officials in an unsuccessful bid to avert criminal charges. The SEC today filed a joint civil case that accuses Stockman of downplaying the company's cash squeeze in a March 17, 2005, conference call with analysts and investors.
Stockman's private investment firm, Heartland Industrial Partners, lost more than $350 million upon the company's collapse, and Stockman personally lost $13 million more. Stockman argues that he and Heartland purchased Collins & Aikman stock on 150 separate trading days leading up to the bankruptcy, never selling their shares.
"My actions involve no wrongful gains," he said in a telephone interview conducted before he turned himself in to authorities. "The charges consist of hyper-technical accounting and disclosure items which reflected reasonable business judgments and good faith applications of accounting rules."
As a private investor at the Blackstone Group and later at his own private equity firm, Stockman grew wealthy enough to amass homes in Greenwich, Conn., and Aspen, Colo. He returned to public view five years ago, when he took over day-to-day control of Collins & Aikman.