Former Reagan Aid Charged in Massive Fraud: Stockman

David Stockman began his assent to prominence whilst he was the budget director from 1981 to 1985 under former President Reagan.^[1] He made headlines early in his tenure when he told an interviewer that he thought Reaganomics was a "Trojan horse" for the rich and (correctly) predicted huge budget deficits.^[2]

His reputation has slipped once again in his slow decent from prominence, as he was charged Monday, March 26, with overseeing a comprehensive fraud at a troubled auto parts supplier that he led before the company collapsed into bankruptcy. Stockman was one of four former top Collins & Aikman Corp(C&A) executives named in a federal indictment unsealed Monday; the other four have already pleaded guilty.^[3] C&A, a firm that makes auto interiors, carpets, acoustics, fabrics and convertible tops, cooperated in the investigation and was rewarded with a deal that calls for the company not to be prosecuted if it continues to help the government.^[4]

The indictment charged Stockman and three others with conspiracy to commit securities fraud,^[5] making false statements in annual and quarterly reports, making false entries in books and records,^[6] and lying to auditors as well as committing bank fraud,^[7] wire fraud^[8] and obstruction of an agency proceeding.^[9]

If convicted, the defendants could face up to 30 years in prison on the most serious charge.^[10]

Bank fraud is committed when a person knowingly executes, or attempts to execute, a scheme or artifice, 1) to defraud a financial institution;^[11] or 2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; this shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.^[12]

Wire Fraud is a crime that takes place when a person, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.^[13]

Obstruction of justice is defined in pertinent part in18 U.S.C. § 1505 as a crime that occurs when the defendant, “with intent to avoid, evade, prevent, or obstruct compliance, in whole or in part, with any civil investigative demand duly and properly made under the Antitrust Civil Process Act, willfully withholds, misrepresents, removes from any place, conceals, covers up, destroys, mutilates, alters, or by other means falsifies any documentary material, answers to written interrogatories, or oral testimony, which is the subject of such demand; or attempts to do so or solicits another to do so…….Shall be fined under this title, imprisoned not more than 5 years.”

The crime of using Manipulative and deceptive devices, is defined in pertinenet part by 15 U.S.C. § 78j(b) where it state that it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange; to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

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^[1] Larry Neumeister, Ex-Reagan Official Charged in Fraud Case, AP (via PhillyBurbs.com), March 27, 2007.
^[2] Id.
^[3] Id.
^[4] Id.
^[5] 18 U.S.C. § 371(2007).
^[6] 15 U.S.C. § 78j(b); 78ff (2007);17 CFR 240.10b-5; 18 U.S.C § 2 (2007)
^[7] 18 U.S.C. § 1344 (2007).
^[8] 18 U.S.C. § 1343 (2007).
^[9] 18 U.S.C. § 1505 (2007).
^[10] Neumeister, supra note 1.
^[11] Id. § 1344(1).
^[12] Id. § 1344(2).
^[13] Id. at § 1343.