Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, March 26, 2007

SEC Files Securities Fraud Charges against Stockman

The SEC filed civil  fraud  charges  against  auto  parts  manufacturer Collins & Aikman Corporation  (C&A),  David  A.  Stockman (Stockman), who served as C&A's former  Chief  Executive  Officer  and    Chairman of the  Board  of  Directors,  and  eight  other  former  C&A directors and officers.   The SEC's complaint alleges  that  between  2001  and  2005,  Stockman personally directed  fraudulent  schemes  to  inflate  C&A's  reported income by accounting improperly for supplier payments. In  furtherance of those schemes,  the  complaint  alleges  that  Stockman  and  other defendants obtained false documents from suppliers designed to mislead C&A's external auditors. According to the complaint, when  aspects  of the schemes were discovered in March  2005,  Stockman  embarked  on  a public campaign to mislead investors, potential financiers and  others by minimizing the extent of the fraudulent accounting and hiding C&A's dire financial condition. During the time Stockman was engaged in this fraudulent conduct, he was  collecting  millions  of  dollars  of  the management fees C&A paid to Stockman's private equity fund,  Heartland Industrial Partners. The other former officers,  including  the  Chief Financial Officer, Corporate Controller, and Treasurer, and  a  former member of C&A's Board of Directors, are alleged to  have  participated in the accounting schemes or the campaign to  mislead  investors.  (This is in addition to criminal charges also filed today.)

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