U.S. Charges David Stockman, Former CEO of Auto Parts Maker, and Other Former Executives With Securities Fraud

NEW YORK, March 26, 2007; An indictment was unsealed today revealing charges against David A. Stockman, the former President and CEO of Collins and Aikman Corporation (C&A), and seven other former members of C&A's management, U.S. Attorney Michael J. Garcia for the Southern District of New York, and Ron Walker, Inspector-in-Charge of the New York Division of the U.S. Postal Inspection Service (USPIS), announced today. The indictment unsealed in federal court in Manhattan charges Stockman with conspiracy, securities fraud, bank fraud, wire fraud, and obstruction of an agency proceeding, in connection with his participation, from December 2001 through May 2005, in a scheme to conceal from investors and lenders the truth about C&A's declining operating performance and financial results. The indictment also charges former C&A Chief Financial Officer J. Michael Stepp; former Controller David R. Cosgrove; and former Director of Purchasing Paul C. Barnaba. Four felony informations, filed today and last week, charge other C&A executives with related crimes.

Mr. Garcia also announced a non-prosecution agreement between his Office and Collins & Aikman Corporation.

Summary of the Fraudulent Scheme

The indictment alleges that starting in December 2001, Stockman, Stepp and others knew that C&A's true operating performance and financial results were not meeting internal and external expectations. Rather than reveal C&A's true condition, which might trigger default on the financial covenants governing C&A's credit facilities and impede C&A's ability to raise additional capital in the debt markets, Stockman, Cosgrove, Stepp, Barnaba and others joined in a scheme to defraud C&A's investors, banks and creditors by manipulating C&A's reported earnings.

From December 2001 through 2004, Stockman, Stepp, Cosgrove, Barnaba, and their co-conspirators schemed to misrepresent C&A's true operating performance and financial results by causing C&A's reported figures for EBITDA (earnings before interest, taxes, depreciation, and amortization), operating income, and other financial metrics to be falsely and fraudulently inflated through the systematic premature recognition of cost reductions based on supplier rebates.

According to the indictment, to further the scheme and conceal the fraud, Stockman, Stepp, Cosgrove, Barnaba, and their co-conspirators caused C&A to file financial statements with the U.S. Securities & Exchange Commission (SEC) that presented a misleading picture of C&A's operating performance and financial results, including quarterly and annual reports that misrepresented C&A's expenses, operating income, and earnings per share.

At the end of 2004 and the beginning of 2005, C&A's true operating results substantially deteriorated, causing an unprecedented liquidity crisis. The indictment charges that Stockman directed a scheme to further defraud C&A's creditors by, among other things, misrepresenting to General Electric Capital Corporation (GECC) the nature of C&A's portfolio of accounts receivable, against which GECC was permitting C&A to borrow over a $100 million dollars on a daily basis. Also in the beginning of 2005, as C&A's improper rebate accounting practices came under scrutiny from its auditors, Stockman directed a scheme to further defraud C&A's investors and creditors by making numerous false statements to the public and to C&A's creditors concerning: (a) C&A's current liquidity situation, (b) C&A's forecasted EBITDA for the first quarter of 2005, and (c) the scope of the improper rebate recognition practices that C&A's outside auditors and Audit Committee were beginning to examine.

In early April 2005, Stockman repeated many of these false assurances to Credit Suisse First Boston (Credit Suisse), in order to secure $75 million in additional financing. These additional funds, however, were not sufficient to meet C&A's needs and were depleted by late April 2005, according to the indictment.

In May 2005, the Board of Directors discovered that C&A had run out of cash and had, at Stockman's direction, misled C&A's investors about C&A's true operating performance. When the truth about C&A's operations and finances was revealed, C&A went into bankruptcy, its common stock became nearly worthless, and the value of its bonds plummeted, resulting in hundreds of millions of dollars in investor and creditor losses.

Charges

The eight-count indictment charges Stockman, Stepp, Cosgrove, and Barnaba each with one count of conspiracy to commit securities fraud, make false filings with the SEC, falsify books and records of C&A, commit wire fraud, commit bank fraud, and obstruct justice, and with three counts of securities fraud. Stockman alone is charged with two counts of bank fraud (arising from fraud on GECC and JP Morgan Chase) and one count of wire fraud. Stockman and Stepp together are charged with obstruction of an agency proceeding.

The conspiracy charge carries a maximum sentence of five years in prison and a fine of the greater of $250,000, or twice the gross gain or loss resulting from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of the greater of $5 million, or twice the gross gain or loss resulting from the offense. Each of the bank fraud counts carries a maximum sentence of 30 years in prison and a fine of the greater of $1 million, or twice the gross gain or loss resulting from the offense. The wire fraud count carries a maximum sentence of 20 years in prison and a fine of the greater of $250,000, or twice the gross gain or loss resulting from the offense. Finally, the obstruction of an agency proceeding count carries a maximum sentence of five years in prison and a fine of the greater of $250,000, or twice the gross gain or loss resulting from the offense.

Non-Prosecution Agreement With C&A

In light of C&A's cooperation with the government's investigation and the current financial situation of C&A, among other factors, the government has entered into a non-prosecution agreement with C&A. C&A will continue to cooperate with the government as a condition of that agreement.

U.S. Attorney Garcia, a member of the President's Corporate Fraud Task Force, praised the efforts of the USPIS and thanked the SEC for its assistance in the investigation.

Assistant U.S. Attorney Helen V. Cantwell is in charge of the prosecution.

The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.