Stockman: "There Is Nothing To Hide"
David Stockman made news 25 years ago when he shared his candid thoughts on President Ronald Reagan's economic plans with a journalist. Today, Reagan's former budget director is again making headlines: On Mar. 26 a grand jury indicted Stockman on eight counts of securities fraud, conspiracy, and obstruction of justice for allegedly cooking the books at Collins & Aikman Corp. (CKCRQ ), the auto-parts supplier that went bankrupt in 2005. Stockman, 60, became the head of C&A in 2003 after his former private equity firm, Heartland Industrial Partners, sank $360 million into the outfit. As brash as ever, Stockman maintains his innocence and contests the allegations. On Apr. 3 he spoke to Associate Editor Matthew Goldstein. Here are excerpts from their discussion.
You've been outspoken since your indictment. Are you concerned that could be used against you?
There is nothing to hide. My fund and I owned about 40% of C&A stock and took the biggest loss [when it failed], about $360 million. During the time of the alleged fraud, we bought an additional $25 million in stock. Why would we defraud shareholders when they were us?
Did you benefit from the advisory fees C&A paid Heartland?
The fees were standard and fully disclosed, and 50% of those fees went to Heartland's investors. When I became CEO of C&A in 2003, nothing changed, except I got to live in a motel next door to headquarters, work 16-hour days for no extra compensation, and shell out millions of my own money to cover things like meals, travel, and employee Christmas parties the company couldn't afford.
Why are prosecutors going after you?
I still have a naive confidence in American justice and don't believe prosecutors go scalp-hunting. But in the current climate, in which business failure has been criminalized, there is nothing to stop them from misguided prosecutions. Here, they piled up a multitude of hypertechnical business and accounting issues until they got an imaginary conspiracy.
Prosecutors say you boosted earnings by improperly booking payments from one of your suppliers, Joan Fabrics, as rebates. Have prosecutors misconstrued such transactions?
We were losing money on the fabrics we bought from our supplier. So we bargained for price relief via rebates. At the same time we did three tiny deals with Joan Fabrics in which we paid the supplier a few million for each. They generated shareholder value. Now, prosecutors are second-guessing those transactions.
Authorities also claim you told employees to get letters from other suppliers that falsely characterized deals as rebates. Did that happen?
First, I never saw any of these letters until our internal investigation in March, 2005, when we restated about 30 rebates that had been booked in the wrong period. The prosecutors' characterization of these letters as deceptive reflects an accounting dispute run amok.
Some say you ignored concerns about the accounting methods used to justify those rebates. Did you?
I ran the company like a town meeting. But I never received any advice about problems with our accounting prior to the internal investigation. The advice I didn't listen to was to stay out of the miserable auto industry in the first place. That was an investment mistake but hardly a crime.
Would you consider a deal?
No. I intend to vindicate myself and all of the other honorable, hardworking C&A executives who have been tarnished by a group of ill-informed prosecutors gone wild.