Military Supplier Ex-CEO Charged with Fraud

The Securities and Exchange Commission (SEC) announced yesterday that it has filed charges against the former CEO and Chairman of the Board of military supplier, DHB Industries. David H. Brooks is accused of funneling DHB profits into his own pockets, as well as insider trading of DHB stocks and participating in accounting fraud.

The US Attorney's Office (USAO) of the Eastern District of New York has conducted its own investigation of Brooks and announced its own charges against Brooks and his accomplice in the fraud schemes, Sandra Hatfield, the former DHB Chief Operation Officer. Hatfield was already charged with securities fraud last year. Brooks was arraigned yesterday afternoon, and Hatfield's arraignment has not been scheduled as of yet.

The SEC indictment is a civil case, whereas the USAO case can result in criminal charges. If criminally convicted the pair could be sentenced to 25 years in prison and face fines equal to double what their schemes made. Between Brooks and Hatfield, the purported amount of fraud is $190 million. The US Government has filed paperwork to freeze $130 million of Brook's assets.

The Regional Director of the SEC in Miami, where the SEC indictment was filed, said in a SEC press release, "This case involves egregious conduct by a company CEO. As always, we aggressively pursue and prosecute company executives who betray the trust of public shareholders in order to line their own pockets."

Mark Mershon, the Assistant Director-in-Charge of the FBI, said in the USAO press release, "This case is fundamentally about greed and excess and deceit. The defendants pillaged the assets of a publicly traded company for personal luxuries, and they repeatedly lied -- to the public, to shareholders, to the SEC, and to company auditors. If they were thinking they would get away with it, they even lied to themselves."

Brooks and Hatfield are accused of manipulating company accounting records to inflate profits, including misrepresenting the actual value of inventory, which drove up the price of DHB stock. They both then sold shares of that stock in November and December 2004, for a profit of $190 million. Furthermore, Brooks and Hatfield used company credit and cash to pay for personal items, such as cars, vacations, jewelry, art, and even horse training, according to the SEC indictment. Brooks and Hatfield are also being charged with tax evasion, as well as encouraging other DHB employees to not report bonuses to the IRS.

Brooks is also being charged by the USAO with obstructing justice. He lied to auditors and filed false records with the SEC during earlier stages of the investigation.

DHB, Industries moved its headquarters from New York to Pompano Beach, Florida and changed its company name to Point Blank Solutions, Incorporated. The company manufactures body armor used by the military as well as law enforcement agencies.

Sources: Securities and Exchange Commission, US Attorney's Office of the Eastern District of New York