A federal judge ruled last week that an Old Westbury businessman who used millions of dollars from his body armor company to finance his high-end lifestyle must forfeit $59.6 million in insider trading proceeds.
David Brooks, 58, will also have to pay restitution to those he defrauded into investing into his company, DHB Industries Inc. of Westbury, which supplied body armor to law enforcement and the military.
Brooks will be sentenced Aug. 15. He could face up to life in prison.
The amount in restitution Brooks will have to pay for defrauding investors will be determined 90 days after his sentencing, according to Judge Joanna Seybert of U.S. District Court in Central Islip, who has presided over the case.
According to a press release from the Federal Bureau of Investigation’s New York field office, Brooks’ spending of corporate funds for his own personal use included corporate-paid trips to exotic locations, an armor-plated vehicle, jewelry, cosmetic surgeries and country club bills.
Brooks also used unreported corporate money to finance a horse-racing business that had no relationship to DHB, hosting a lavish bar mitzvah for his son for which he spent $40,000 in leather-bound invitations, according to the FBI.
“Corporate executives who lie to and steal from their employers – the shareholders – put the investing public at grave financial risk,” U.S. Attorney Loretta Lynch said in a statement at the time of the verdict. “We stand committed to ensuring that our markets operate fairly and honestly, and we will tirelessly investigate and prosecute insiders who fraudulently enrich themselves.”
Brooks engaged in a related scheme with Tactical Armor Products, a company run independently of DHB by Brooks’ wife that was actually run entirely by Brooks, according to the FBI. More than $10 million was siphoned out of DHB by Brooks to pay for obsolete body armor plates from Tactical Armor Products, and profits from these transactions were used to pay for more than $16 million in Brooks’ horse racing business, jewelry and cash investments.
According to the FBI, Brooks deceived investors and auditors by creating fraudulent multi-million dollar transactions and doctoring internal DHB documents to cover up the scheme.
Brooks and Hatfield also engaged in several accounting fraud schemes to increase the company’s net income and profits reported in press releases and filings with Securities and Exchange Commission. This included adding non-existent inventory to DHB records and fraudulently reclassified its expenses, according to the release.
Brooks and Hatfield attempted to cover up many of the schemes by submitting false reports to the SEC during an investigation into DHB’s wrongdoing, the FBI said.
Brooks lied to DHB’s independent auditors about the company’s inventory inflation fraud, and when auditors tried to view the phony inventory, Brooks claimed it had been destroyed in a hurricane. He later admitted the inventory never actually existed, investigators said.
In November 2004, Brooks and Hatfield sold $72 million in DHB stock and $118 million that December, as the company’s stock price rose to more than $20 per share, according to the FBI.
Brooks, the FBI said, netted $185 million and Hatfield $5 million from the deals, and the stock then plummeted to pennies on the dollar and was de-listed from the American Stock Exchange.
The prosecution of Brooks and other DHB officers has taken seven years of federal proceedings in Central Islip, as Brooks first protested his innocence and has more recently claimed to suffer from mental problems.
Brooks was denied a motion in 2012 to overturn his conviction because the medication he was taking made him unable to assist in his own defense.
In September of 2010, a federal jury in Central Islip found Brooks and Sandra Hatfield, DHB’s former chief operating officer, guilty of insider trading, fraud and obstruction of justice following an eight-month trial.
Brooks was also found guilty of lying to auditors and falsely inflating the company’s inventory to artificially boost reported profits.
“DHB shareholders invested their money for the production of body armor for the American military and law enforcement, not to finance their lavish lifestyles of corporate insiders through their theft and deception,” IRS Special Agent-in-Charge Charles R. Pine said in a statement at the time of the verdict. “The defendants’ acts were not only illegal, but they also create doubt in the minds of the investing public in the integrity of America’s financial markets. The guilty verdicts today will send a strong signal to the public that the law enforcement community continues to devote resources to combat and curb this kind of behavior.”
Hatfield resigned from DHB in November 2005 and Brooks was removed as the company’s CEO in July 2006. DHB then relocated its headquarters to Pompano Beach, Fla. and in October 2007 changed its name to Point Blank Solutions, Inc. The company’s trading on the American Stock Exchange was suspended on May 26, 2006. The company filed for bankruptcy in April 2010.
“This case was fundamentally about stealing and lying,” FBI Assistant Director-in-Charge Janice Fredarcyk said in a statement at the time of the verdict. “If someone robs a bank, it’s a crime regardless of how he spends the money. Likewise, it’s immaterial how Brooks spent the millions he misappropriated. To commit the theft and reap the insider trading windfall, and to conceal it all, Brooks and Hatfield lied to shareholders, lied to auditors, lied to regulators. The FBI is committed to policing and preventing this sort of brazen corporate misconduct.”
