Heartland founder and affiliates indicted

Criminal and civil charges have been brought against former Reagan White House budget director David Stockman – who founded Heartland Industrial Partners following a stint at Blackstone – as well as against several executives affiliated with Heartland.

Bank fraud, securities fraud, wire fraud and conspiracy are among the criminal charges that have been filed against former White House budget director David Stockman and a handful of former executives at Southfield, Michigan-based Collins & Aikman. The bankrupt auto parts supplier was a portfolio company of Stockman’s private equity firm, Heartland Industrial Partners.

Greenwich, Connecticut-based Heartland Industrial was the brainchild of Stockman, who in addition to his role in the Reagan White House, served stints as a US Congressman and, more recently, as a senior managing director at The Blackstone Group. Upon launching the auto industry-focused private equity firm in 1999, Stockman said that “traditional manufacturing businesses are undervalued and the industrial sector remains under-penetrated by private equity funds”.

Heartland purchased Collins & Aikman for $260 million in 2001; in 2005, Stockman resigned days before the firm declared bankruptcy, and the firm was subsequently sold to distressed specialist WL Ross.

The indictment filed by the US Attorney’s Office for the Southern District of New York alleges Stockman, Collins & Aikman’s former CEO, conspired with company executives to manipulate revenue and earnings reports, improperly recognise cost reductions related to supplier rebates, and falsely describe the firm’s operating performance and financial results.

At a press conference Monday, US Attorney Michael Garcia said the executives had “resorted to lies, tricks and fraud” to keep the company afloat, the Wall Street Journal reported.

“There was no fraud here,” said Elkan Abramowitz, Stockman’s attorney, in a statement. “From his early public service in Congress and the Reagan administration, to his prominence in private equity at Blackstone and Heartland Industrial Parnters, Stockman has built his career on candor and integrity.”

Had Collins & Aikman’s board not forced out Stockman in “an overzealous rush-to-judgment”, Abramovitz said, deals the former CEO had been working on would have prevented the firm’s bankruptcy.

Stockman maintained his innocence in his own statement, highlighting his devotion to salvaging the auto parts company, which he said he “ran like a town meeting – everything was done in the open”.

“In this battle for survival, I moved into a motel next to the headquarters; worked long hours without any compensation; and personally absorbed millions in company expenses,” he said.

“The massive loss of jobs and money which occurred at Collins & Aikman was not due to fraud or deception,” Stockman said, “but was the consequence of an industry meltdown that generated $50 billion in supplier bankruptcies.”

In addition to Stockman, criminal charges have been filed against six former Collins & Aikman executives, several of whom once worked for or had affiliations with Heartland Industrial. Three have plead guilty, while Stockman and three others have plead not guilty, according to the Journal. Stockman’s bail was set at $1 million at a Monday afternoon hearing.

The Securities and Exchange Commission has also filed civil charges again Stockman, Collins & Aikman and eight other executives, the Journal said. The firm settled with the SEC without admitting or denying guilt, and was not fined.