FORMER CEO AND COO OF BULLET PROOF VEST MAKER CONVICTED

The former CEO and COO of one of the primary manufacturers of body armor for the U.S. military were convicted of fraud, insider trading and obstruction of justice following an eight-month jury trial. U.S. v. Brooks (E.D.N.Y.). David H. Brooks and Sandra Hatfield were, respectively, the former CEO and COO of DHB Industries, Inc., now known as Point Blank Solutions, Inc.

The indictment charged Mr. Brooks and Ms. Hatfield with essentially looting the body armor manufacturer for their personal benefit. According to the government, the defendants enriched themselves and their families, using corporate funds to finance a lavish lifestyle, including the purchase of travel, personal jewelry, cosmetic surgery, country club bills and other items.

Fraudulent actions by Mr. Brooks and Ms. Hatfield included:

• Related party transaction: A concealed related party scheme in which a company supposedly independent of DHB and with which it did business was actually owed by defendant Brooks’ wife and financed with corporate money. Profits from the venture were used to pay for more than $16 million in Mr. Brooks’ personal horse racing business and for other personal items.

• Accounting fraud: The defendants used a variety of fraudulent accounting methods to boost the net income and profits of DHB. These included adding non-existent inventory to the company’s books and records and reclassifying expenses.

• Obstruction of SEC: Both defendants attempted to cover up their schemes by obstructing an SEC investigation of DHB’s executive compensation and related party transactions. Mr. Brooks also lied to the outside auditors.

• Insider trading: In November 2004, after false filings were made with the SEC, the defendants sold more than $72 million of their DHB stock. The next month they sold about $118 million of company stock. The sales, made when the share price was over $20 per share, netted Mr. Brooks about $185 million and Ms. Hatfield over $5 million. Later, the stock price fell to a few cents per share and was delisted.

The SEC also filed actions against Mr. Brooks and Ms. Hatfield. SEC v. Brooks, Civil Action No. 07-61526 (S.D. Fla. Filed Oct. 25, 2007); SEC v. Schlegel & Hatfield, Civil Action No. 06-61251 (S.D. Fla. Filed Aug. 17, 2006). The Commission’s complaints are based on essentially the same conduct as the criminal charges.

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