This past week I’ve been reporting a feature on some of the worst-performing buyout funds of all-time. Not surprisingly, people associated with these funds have been hard to track down (as many of the firms are no longer in existence) or unresponsive to calls and e-mails seeking comment. Not so with David Stockman, though.
For those who don’t know, Stockman is the former budget director for President Ronald Reagan who in 1985 left politics, eventually joining the Blackstone Group. He was in the news a lot in recent months for his opposition to extending the Bush tax cuts.
In 1999, Stockman helped raise $1.4 billion for a new fund, Heartland Industrial Partners, which is among the worst performers. In 2007, federal prosecutors charged him with fraud in a scheme to save a Heartland company, Collins & Aikman Corp., a Southfield, Mich.-based auto parts maker, which went bankrupt in 2005. Two years later, the charges were dropped. For more background, see this interesting Bloomberg story on executives who’ve been indicted for corporate crimes and then had the charges dropped.
I reached out to Stockman to see if he’d like to chat about what went wrong with Heartland. Below is his response, which he invited me to quote in full. He lashes out at Helen Cantwell, a former assistant U.S. attorney in New York, now at the law firm Debevoise & Plimpton LLP, who was a lead prosecutor in his case, and Davis Polk & Wardwell LLP, the law firm that conducted an internal investigation of Collins & Aikman. Basically, he blames them for destroying Collins & Aikman and Heartland.
Cantwell and a spokesperson for Davis Polk & Wardwell did not immediately respond to calls seeking comment. Stockman’s reply, edited only for spelling and punctuation:
You may quote me as follows:
Heartland’s outcome has nothing to do with investment performance. The fund was destroyed by Davis Polk in a grotesque act of reckless legal malfeasance in May 2005. Their destructive attack on me and Heartland’s lead company, Collins & Aikman, was compounded when they forced it into an unnecessary bankruptcy, and then recruited an incompetent, rogue prosecutor from the U.S. Southern District to bring charges against me and other officers of the company.
In a prosecutorial rampage conducted by Helen Cantwell, an assistant U.S. attorney who had previously done drug and murder cases and had zero business experience or knowledge, four innocent people were indicted; four others were brow-beat into guilty pleas; and dozens of other honest employees of Collins & Aikman were hounded and threatened with prosecution. Yet after two years of legal intimidation and 15 million pages of discovery among the company’s documents, the Justice Department withdrew the case, dropped all the indictments and allowed the four guilty pleas to be withdrawn—after it concluded that further pursuit of the case ‘would not be in the interest of justice.’
The same massive body of documents which showed that there had been no wrongdoing at the company and which led the Justice Department to terminate the case also proved that Davis Polk had acted with reckless malfeasance when it turned the company’s board of directors into kangaroo court in May 2005. With less than an hour of deliberation and without presentation of a single document to the board, Davis Polk forced me to resign as CEO based on a spurious charge that I had deliberately falsified the company’s earnings forecast for the upcoming quarter.
The mountains of discovery documents showed there wasn’t an iota evidence to support this preposterous charge that I falsified an earnings forecast—since the forecast in question was made only 13 days before the end of the quarter when I knew the actual results would soon be public, anyway. In fact, the discovery documents prove the forecast was made in good faith after an extensive, diligent three-week review of the company’s outlook but that, by contrast, Davis Polk had conducted a superficial one-day investigation which did not include any of the relevant documents or testimony from any of the relevant company executives.
In short, Heartland’s flagship company was destroyed and thousands of people lost their job because in its eagerness to book millions in Sarbanes-Oxley investigation fees, Davis Polk acted with rash, careless arrogance. Since Collins & Aikman constituted one-third of the Heartland’s portfolio, it could not recover from this body-blow nor from all of the disruption that attended my unwarranted prosecution—notwithstanding my ultimate vindication.”