Charges Readied Against Reagan Aide Stockman

Federal prosecutors are preparing to unveil criminal charges against former budget director David A. Stockman for incomplete disclosures and improper accounting practices he allegedly endorsed while at the helm of a Michigan auto parts company, according to sources familiar with the two-year investigation.

Stockman, 60, famously led the Office of Management and Budget under President Ronald Reagan, who once took him "to the woodshed" for privately expressing doubts about huge deficits at the same time he was selling the administration's budget to the public and federal lawmakers.

A grand jury indictment sought by the office of U.S. Attorney Michael J. Garcia in Manhattan and officials at the U.S. Postal Inspection Service could be revealed as early as Monday, according to the sources, who spoke on condition of anonymity because the investigation continues. The sources would not confirm whether an indictment had already been returned.

The sources said the Securities and Exchange Commission is preparing to announce a simultaneous enforcement action. The SEC has been probing the records of Collins & Aikman, the Southfield, Mich., auto parts business that Stockman led as chairman and later chief executive from 2002 until his ouster in May 2005.

Under pricing pressure from the three domestic auto makers, the company filed for bankruptcy protection days after Stockman was shown the door for allegedly failing to inform board members about its mounting financial woes.

Attorneys for Stockman met last week with law enforcement authorities in New York in an unsuccessful bid to persuade them not to seek criminal charges, according to the sources.

Over the past few months, Stockman gave multiple face-to-face interviews with prosecutors in an attempt to convince them of the rightness of his position, the sources said.

Stockman's lawyers and government officials declined to comment publicly on the case.

Stockman, elected to the House of Representatives from his home state of Michigan at age 30, became a private-equity investor after his government service, collecting hundreds of millions of dollars while working at Blackstone Group.

Stockman and Heartland Industrial Partners, the Greenwich, Conn., private-investment fund he co-founded to invest in the auto industry in 1999, lost hundreds of millions of dollars when Collins & Aikman plummeted into bankruptcy protection. Heartland invested more than $350 million in the parts maker, and Stockman personally shelled out millions more. The company supplies parts to more than 90 percent of the vehicles made in North America.

Defense lawyers told The Washington Post last year that, unlike other chief executives under investigation for accounting malfeasance, Stockman had no motive to mislead the market because he lost money alongside average investors. Stockman, they said, did not sell his holdings even as Collins & Aikman's stock price veered downward. That issue is likely to be an important facet of his defense.

Many former officials at Heartland and Collins & Aikman are expected to face criminal charges for their roles in accounting for rebates from suppliers and for allegedly failing to disclose deal terms as the company used its stock five years ago to purchase rivals and consolidate operations, the sources said. One key witness for prosecutors is John A. Galante, a former treasurer and planning director at Collins & Aikman, who agreed to cooperate with investigators last year.

Stockman captivated the nation's capital as a razor-sharp point man for Reagan's domestic programs in the early 1980s. He brought his driven, hands-on management style to Collins & Aikman, where he carted around thick financial notebooks and gave lengthy, sometimes prickly answers to questions from analysts and investors.

Items under government scrutiny include how and when the company posted revenue from supplier-rebate programs, as well as whether real estate deals Stockman entered into with leaders of companies that Collins & Aikman acquired were fully disclosed to shareholders and whether they put investors at a disadvantage.