Federal Charges Dropped Against Stockman
Former White House Budget Chief, Fellow Auto Parts Executives Face SEC Suit

By Carrie Johnson
Washington Post Staff Writer
Saturday, January 10, 2009

Reagan-era White House budget chief David A. Stockman told everybody who would listen that he was innocent of fraud charges after he was indicted in New York nearly two years ago.

Yesterday, after a behind-the-scenes lobbying campaign, the boy wonder of 1980s Washington convinced the only audience that mattered: prosecutors and a federal judge, who disposed of the criminal case against him with the stroke of a pen.

In a move that longtime securities lawyers called next to unprecedented, the acting U.S. attorney concluded that prosecuting Stockman and three other men who worked under him at the defunct Michigan auto parts maker Collins & Aikman "would not be in the interests of justice."

Defense lawyers for Stockman, who rose to prominence 28 years ago as the point man for Reagan's "trickle down" economic plan, adopted a high-risk strategy. Shortly before Thanksgiving, they submitted an extensive white paper refuting the accounting theories that underlay the government case. Then in early December they presented their analysis of more than 15 million corporate documents in a day-long meeting with Lev Dassin, the acting U.S. attorney; two supervisors in the office's securities fraud unit; and three other prosecutors.

"The case was unusually complex," said Elkan Abramowitz, the lead criminal defense lawyer for Stockman. "They deserve credit that they were willing to listen."

The case revolved around how and when the company posted rebates for parts that the bankrupt company manufactured, an issue that had tripped up other auto parts makers as the industry began to collapse more than three years ago. But defense lawyers said it was unfair for the government to target Stockman when its rivals such as Delphi escaped indictment.

Stockman, who was elected to the U.S. House at age 30 from his home state of Michigan, poured his hyperkinetic energy into the case. He took to the airwaves to criticize prosecutors, accusing them of being "uninformed" and calling their felony indictment "a fairy tale."

Stockman also maintained that he was being punished for making poor business decisions in the midst of an industry downturn, an argument that carries fresh echoes now that prosecutors are investigating scores of financial institutions for mortgage related investments that went south. Yesterday, though his lawyers, Stockman uncharacteristically declined to comment.

Andrew Weissman, a Washington-based lawyer at the WilmerHale firm who helped engineer the defense strategy, called the U.S. Attorney's decision "one of the most gratifying moments in my 30-year legal career."

"We are grateful to the U.S. attorney for his fair and open-minded consideration of the evidence which overwhelmingly showed that David Stockman engaged in no misconduct at all . . . in his efforts to help Collins & Aikman survive in the embattled auto industry," Weissman said.

Defense lawyers for three subordinates charged alongside Stockman cheered the unusual decision to backtrack from a case that inspired national headlines. Gandolfo "Vince" DiBlasi, a lawyer for onetime chief financial officer J. Michael Stepp, said "the case was flawed from the beginning and never should have been brought."

Solomon Wisenberg, a lawyer for accountant Paul C. Barnaba, said Barnaba is "looking forward to going on with his life." And Craig Stewart, a lawyer for controller David R. Cosgrove, said it was "clearly the right outcome."

Officials at the Securities and Exchange Commission, which filed a civil complaint against Stockman and other Collins executives, said they were reviewing the court filing. "We are assessing the basis for the decision and any bearing it may have on our case, which is pending," agency spokesman John Nester said.

Any effort to dismiss the civil charges would require approval of the five-member commission, Nester added.

Veterans of the federal courthouse in Manhattan could not remember another case against such a high-profile defendant that fell by the wayside. The closest that New York lawyers could come was the dropped prosecution of Richard Wigton, who was hauled out of his Wall Street office in handcuffs by then U.S. Attorney Rudolph Giuliani in 1987.

But Stockman's legal saga is far from over. Monday, he must appear at a court mediation session in Michigan, as lawyers try to resolve many private lawsuits stemming from his company's collapse.