Sept. 14 (Bloomberg) -- David Brooks, a founder and former chief executive officer of military contractor DHB Industries Inc., was found guilty of committing a $185 million fraud and looting the company to pay for personal expenses.
Brooks, 55, and former Chief Operating Officer Sandra Hatfield, 56, were convicted today in Central Islip, New York, of insider trading, fraud and obstruction of justice in manipulating financial records to increase DHB’s reported earnings, said Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch. Brooks was also convicted of lying to auditors.
“Corporate executives who lie to and steal from their employers -- the shareholders -- put the investing public at grave financial risk,” Lynch said in a statement today.
DHB, now called Point Blank Solutions Inc., makes body armor for the military and police. It filed for bankruptcy protection on April 14. Brooks and Hatfield lied about inventory of “Interceptor” combat vests that were shipped to the U.S. armed forces and falsely inflated the company’s value and their own stock, the government said.
Brooks and Hatfield face as long as 25 years in prison on the most serious counts of securities fraud, conspiracy to commit securities fraud and insider trading.
Kenneth W. Ravenell, a lawyer for Brooks, declined to comment because he said the jury will return Oct. 5 to address the prosecutors’ forfeiture claims. Roland G. Riopelle, a lawyer for Hatfield, didn’t immediately return a call.
The federal trial began with opening statements Jan. 25. The jury began deliberating Aug. 2.
Brooks earned $185 million in the scheme while Hatfield earned $5 million, according to prosecutors. Brooks spent company funds “lavishly” on perks and expenses for himself and his family, including purchases of a Bentley and a Ferrari and grooming of 100 purebred trotting horses, Assistant U.S. Attorney Richard Lunger told jurors in his opening statement.
Brooks used a company Learjet to fly his family on $400,000 worth of flights to the Caribbean, Italy and France, prosecutors said when Brooks was indicted.
The scheme took place from July 2000 to July 2006, according to the government. In July 2006, DHB moved its headquarters from Westbury, New York, to Pompano Beach, Florida.
Dawn Schlegel, DHB’s former finance chief who was indicted with Hatfield, pleaded guilty and cooperated with the government. U.S. District Judge Joanna Seybert, presiding over the trial, in court papers called Schlegel “the government’s key witness.”
On April 16, Seybert found Brooks in contempt of court for refusing to produce computer data to authenticate an e-mail that he said showed Schlegel lied on the stand and that the government said was doctored. The judge ordered contempt proceedings to take place after the fraud trial ended.
Seybert, who had previously granted Brooks’s release on $400 million bond, on Jan. 20 ordered him into custody after she found that he had concealed millions of dollars in overseas accounts.
Angela Jett, an agent with the Federal Bureau of Investigation, said in court papers that Brooks hid money in accounts in San Marino, Switzerland and London.
Seybert halted the trial July 20 after federal marshals discovered about “nine contraband pills hidden in pens at Brooks’ defense table,” according to a July 26 letter by Lunger.
On May 7, the judge threw out evidence of Brooks’s cable-television bills the government said that DHB paid for and that included charges for adult movies. Other evidence showed Brooks paid for the bills, Seybert concluded. Schlegel testified that Brooks told her the movies were for his son.
The judge allowed the jury to consider Schlegel’s testimony that Brooks used $9,000 of the company’s money to pay for prostitutes.
Point Blank cited legal costs and lack of financing for its April bankruptcy filing. It listed assets of $63.9 million and debt of $68.5 million as of Feb. 28.
“The decision to file for Chapter 11 protection was driven primarily by continued expenses associated with legacy issues from former management, and the lack of financing available to the company given the state of the credit markets,” Point Blank said in a statement when it went bankrupt.
The case is U.S. v. Brooks, 06-CR-550, U.S. District Court, Eastern District of New York (Central Islip).
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