updated 12/12/2006 2:27:29 PM ET 2006-12-12T19:27:29

A former top budget official in the Reagan White House is a target of a criminal investigation into possible financial fraud at an auto parts company he headed before it collapsed into bankruptcy, a federal official told The Associated Press.

David Stockman, who rose to prominence as budget director under President Reagan, is the former chairman and CEO of Michigan-based Collins & Aikman Corp.

Federal investigators and prosecutors are preparing a case against Stockman and other corporate officers from Collins & Aikman and expect to soon present the findings to a grand jury in New York City, the official said.

The investigation is focused on whether Stockman and other corporate officers at Collins & Aikman misled investors about the financial health of the company by artificially inflating stock prices. ABC News reported on the case Monday.

The investigation began last summer, the federal official said, speaking on condition of anonymity because the probe is still under way.

Stockman could face charges of securities fraud, mail fraud and wire fraud, the official said.

Stockman’s attorney, Elkan Abramowitz, said he did not believe that charges should be brought.

“We have been cooperating fully with both the U.S. attorney and the SEC,” he said. “We strongly believe that no criminal charges should be brought against Mr. Stockman. We have made our arguments orally to the U.S. Attorney. We have been told that they are considering them.”

Collins & Aikman spokesman David Youngman declined comment Tuesday.

Collins & Aikman Corp. filed for Chapter 11 bankruptcy protection in 2005. It was formed in 1891 as an upholstery manufacturer and now provides automotive flooring, fabric, instrument panels and other equipment to several automakers around the world.

Stockman, also a former congressman, was Reagan’s budget director from 1981 to 1985. He created a storm early in his tenure when he told an interviewer that he thought Reaganomics was a “Trojan horse” for the rich, and predicted huge budget deficits. He said later he was summoned to the White House “woodshed.”

Stockman apologized and kept his job until 1985, when he resigned and wrote a book of scathing criticism for Reagan and his top aides.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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