NY jury convicts body-armor company founder of running $190 million stock scheme
The founder of America’s leading supplier of body armor to the U.S. military was convicted Tuesday of charges that he ran a $190 million stock scheme.
David H. Brooks, founder and former chief executive of DHB Industries Inc., was convicted of 17 counts, including securities fraud and conspiracy. Prosecutors said he used the company treasury for personal luxuries, with more than $6 million in unauthorized expenditures.
Sandra Hatfield, the company’s former chief operating officer, was convicted of related charges, but acquitted of mail and wire fraud.
Defense attorneys and prosecutors declined to comment.
The defendants were accused of falsely inflating the value of the inventory of the company’s top product, the Interceptor vest, to help meet profit margin projections.
There were no allegations that the vests or other DHB products were unsafe. The Interceptor vest, designed to withstand rifle fire and shrapnel, was made for the Marine Corps and other branches of the military.
Brooks’ attorney, Kenneth Ravenell, told jurors all the expenditures were approved by the company’s board and in various agreements between Brooks and the company, specifically a 1997 memorandum that prosecutors allege was a forgery.
Ravenell said Brooks had put as much as $20 million of his own money into the business in the years after acquiring it in 1995 and contended the spending on personal items amounted to less than what he was owed.
The company saw its fiscal fortunes soar after the Sept. 11, 2001, terrorist attacks and the wars in Afghanistan and Iraq. Authorities allege the scheme propelled the company’s stock from $2 a share in early 2003 to nearly $20 a share in late 2004. When the pair sold several million DHB shares at that time, Brooks made more than $185 million and Hatfield more than $5 million.
Brooks resigned from DHB in July 2006, about the same time the company relocated its headquarters from Westbury, N.Y., to Pompano Beach, Fla., where it operates as Point Blank Solutions Inc.
Hatfield left the company in November 2005.
The key prosecution witness was the company’s former chief financial officer, Dawn Schlegel, who pleaded guilty to conspiracy to commit fraud. She spent 23 days on the witness stand during the six-month trial, testifying against her two former colleagues.
Defense attorneys derided the testimony as that of a desperate woman lying to save herself from a long prison term; Schlegel faces up to 10 years behind bars.
Ravenell said that during her testimony, Schlegel had tearfully lamented how her guilty plea will result in a felony conviction on her record, but later confessed that the sobbing on the witness stand had been rehearsed during a meeting with prosecutors. He also noted that Schlegel admitted lying on her income tax returns.
“They knew she was a liar before they put her on the witness stand,” the defense attorney said during closing arguments.
Hatfield’s attorneys portrayed their client as someone with no training as an accountant whose priority was meeting production quotas as the military sought increasingly more vests to equip soldiers fighting in Iraq and Afghanistan.
Prosecutors say Brooks threw lavish bar and bat mitzvahs for his children in which entertainers such as Tom Petty, Aerosmith and the Eagles performed.
He had been free on a $400 million bail package until January 2010, when U.S. District Judge Joanna Seybert found he and his brother had engaged in schemes to hide assets from the government and the court.