The securities fraud prosecution of an auto parts executive who served as President Reagan’s budget director, David Stockman, will discourage CEOs from taking aggressive steps to save companies headed toward bankruptcy, a lawyer for Mr. Stockman said.

In an indictment made public yesterday, federal prosecutors in Manhattan charged Mr. Stockman, 60, and three others with hiding from investors the failing finances of a Michigan auto parts company, Collins & Aikman.

In a statement, Mr. Stockman’s attorney, Elkan Abramowitz, said the charges “send a disturbing message to CEOs: at the first sign of trouble, put your head down and do nothing.”

Mr. Stockman pleaded not guilty in U.S. District Court in Manhattan yesterday.

He was elected three times as a congressman from Michigan until he gave up the job in 1981 to direct the Office of Management and Budget under Mr. Reagan. Promoting supply side economics, Mr. Stockman served in that job until 1985.

After a stint on Wall Street, he began investing in the auto industry. Collins & Aikman, which supplies instrument panels and carpeting, among other auto parts, filed for bankruptcy in 2005, shortly after Mr. Stockman’s departure as chief executive.

In a statement, Mr. Stockman proclaimed his innocence and said he worked hard to try to turn the company around. As an example of his dedication to the company, Mr. Stockman, who lives in Greenwich Conn., said he had moved into a motel near company headquarters to work long hours. Hinting at a possible defense strategy, Mr. Stockman said he continued to sink money into the company and purchase additional stock rather than withdraw his investments.

The government’s charges against him carry penalties of up to 30 years in prison. The indictment charges Mr. Stockman and J. Michael Stepp, David Cosgrove, and Paul Barnaba with a rebate scheme whose sole purpose was to pad the reported income.

While that allegation, if true, is relatively difficult to defend, a law professor at Columbia University, John Coffee, said other charges in the indictment may prove relatively difficult for prosecutors to prove. Among the apparently weaker charges, Mr. Coffee pointed to allegations that Mr. Stockman had secured a $75 million loan from Credit Suisse in April 2005 by using false assurances about the company’s forecast.

“That is likely to be an area he can defend in an aggressive fashion because banks do due diligence,” Mr. Coffee said.