Collins & Aikman sues ex-CEO Stockman

/ Source: The Associated Press

Collins & Aikman Corp. sued its former chief executive, David Stockman, and the private-equity firm that helped him take control of the auto-parts company in 2001, saying they enriched themselves by inflating earnings and sending the company on a disastrous acquisition spree.

The lawsuit, filed Wednesday in the U.S. District Court in Wilmington, Del., accuses Stockman and several other former executives and directors of fraud and mismanagement.

It alleges malpractice by Collins & Aikman's auditors, PricewaterhouseCoopers and KPMG, saying they turned a "blind eye" to signs of accounting improprieties at the company.

And it seeks to force Heartland Industrial Partners, the $1 billion private-equity firm Stockman founded, to return an unspecified amount in fees and other benefits it collected as a result of the acquisition binge.

"This acquisition spree positioned the company for disaster," the lawsuit reads.

A Heartland representative didn't respond to requests to comment on the suit.

Stockman, White House budget director during the early 1980s under President Ronald Reagan, recently was indicted on federal accounting-fraud charges, to which he has pleaded not guilty.

Elkan Abramowitz, the New York attorney defending Stockman in the criminal case, said that, to the extent the new Delaware lawsuit mirrors allegations in the indictment, it is "all premised on the same misunderstanding of what his conduct was."

A spokesman for auditor PricewaterhouseCoopers, David Nestor, said, "PricewaterhouseCoopers believes its work complied with all professional standards and intends to defend this case vigorously."

KPMG spokesman George Ledwith said the firm hadn't seen the lawsuit.

Collins & Aikman, a supplier of automotive-interior parts to General Motors Corp. and Ford Motor Co., filed for Chapter 11 protection from creditors on May 17, 2005. Its attempts at reorganization have failed, and the company is in the process of selling its key businesses and "will soon cease to exist."

The company said in its lawsuit that it expects to exit bankruptcy proceedings as early as June 5.

Over the past few weeks, Collins & Aikman has filed hundreds of lawsuits against suppliers and other businesses that received funds from the company in the run-up to its Chapter 11 filing. It said in court papers that money it recovers as a result of those and other lawsuits will be distributed to creditors.

The executives named as defendants in Collins and Aikman's most recent lawsuit include former vice chairman J. Michael Stepp, former controller David R. Cosgrove and Paul C. Barnaba, a former purchasing executive. All three have pleaded not guilty to federal charges in the case. Former Collins & Aikman treasurer and Heartland vice president John Galante, who entered a guilty plea, is also on the roster of civil defendants.

Not named in the criminal indictment but targeted in the civil suit is Elkin B. McCallum, a member of the board and the former chief executive of Joan Fabrics, which filed for Chapter 11 protection in Delaware recently. Other named defendants include former members of Collins & Aikman's board who served as recently as May 2006.