Securities Law Prof Blog

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

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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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