Collins & Aikman has sued its former chief executive, David Stockman, and the private-equity firm that helped him take control in 2001, saying they enriched themselves by inflating earnings and sending the company on a disastrous acquisition spree.
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The lawsuit, which the Associated Press (AP) and other news agencies said was filed on Wednesday in the US District Court in Wilmington, Delware, 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, AP noted, adding that it seeks to force Heartland Industrial Partners, the $US1bn 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 was reported to read.
A Heartland representative didn’t respond to news agency requests to comment on the suit.
The Associated Press said 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, reportedly 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, told AP: “PricewaterhouseCoopers believes its work complied with all professional standards and intends to defend this case vigorously.”
KPMG spokesman George Ledwith reportedly said the firm hadn’t seen the lawsuit.
Interiors specialist Collins & Aikman, filed for Chapter 11 bankruptcy protection from creditors on 17 May. Reorganisation attempts have failed, and the company is in the process of selling its key businesses and “will soon cease to exist”, AP noted.
The company said in its lawsuit that it expects to exit bankruptcy proceedings as early as June 5.
The report also said that, 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.
