Canadian Plastics

Former Collins & Aikman CEO charged with fraud

A US attorney has announced fraud charges against David Stockman, the former CEO and president for bankrupt auto su...

March 27, 2007   Canadian Plastics

A US attorney has announced fraud charges against David Stockman, the former CEO and president for bankrupt auto supplier Michigan-based Collins & Aikman Corporation, and three of his top executives.

Attorney Michael Garcia unsealed an indictment that charges Stockman, former C&A CFO J. Michael Stepp, former Controller David Cosgrove and former Director of Purchasing Paul Barnaba with securities fraud and related charges. Stockman and Stepp are also charged with obstruction of justice.

All four have pleaded not guilty to the charges against them.

Additionally, four felony Informations have been filed, charging other C&A executives with related crimes.

In a prepared statement to the press yesterday, Garcia said Stockman “hid the full truth from the company’s investors and lenders” about the company’s financial troubles.

Stockman took control of C&A from 2001 to 2005, and was forced to resign by the Board of Directors five days before the company filed for bankruptcy. Garcia accused the former Reagan budget chief and his executives of resorting to “lies, tricks and fraud” in their attempts to revive the ailing parts maker.

At the press conference announcing the indictment yesterday, Garcia identified two rebate fraud schemes and false claims about the company’s finances to borrow from GE Capital Corporation.

Garcia also charged Stockman with lying about the company’s projected first quarter results in 2005.

“In the years that Stockman and his co-conspirators forestalled bankruptcy through lies and fraud, Collins & Aikman sold hundreds of millions of new bonds to public investors, and it borrowed hundreds of millions from lenders,” said Garcia.

Four other defendants, including former C&A Plastics Division CFO Thomas Gougherty, have pleaded guilty to charges arising from the investigation.

In a message posted on his attorney’s website, Stockman struck back at the charges and called them “implausible on their face.” He argued that his fund owned 40 per cent of the common stock, and that he wasn’t trying to deceive anyone.

“I ran C&A like a town meeting,” he said. “Everything was done in the open and meetings often included dozens and dozens of employees. It is inconceivable that crimes and conspiracies could be committed in that environment.”

Stockman also claimed that the job and money losses were the product of an “industry melt-down that generated $50 billion in supplier bankruptcies” rather than attempts to defraud the company.

Meanwhile, C&A announced yesterday that it had reached a non-prosecution agreement, removing the threat of an indictment of the company itself.

“Since their inception, we have cooperated with the government’s investigations and will continue to do so,” said C&A’s Chief Restructuring Officer John Boken in a press release.

The company is currently trying to sell its remaining business operations, and recently signed a letter of intent to sell nine plastics facilities to Troy, Mich.-based Tier 1 supplier Cadence Innovation.


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