Military Supplier Is Charged With Fraud

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by
The Associated Press

Military Supplier Is Charged With Fraud

by
Frank Eltman

CENTRAL ISLIP, N.Y. - The former CEO of the nation's leading supplier of body armor to the US military was indicted yesterday on charges of insider trading, fraud, and tax evasion in a scheme that netted him more than $185 million, prosecutors said.

David H. Brooks, 53, the founder of DHB Industries Inc., appeared in federal court on Long Island and was ordered held without bail. His lawyer entered a not guilty plea.

The charges were outlined in a superseding indictment that also named Sandra Hatfield, 54, DHB's former chief operating officer. The two 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.

Authorities allege the scheme propelled the company's stock from $2 a share in 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, according to the US attorney's office.

When an employee identified only as "John Doe" confronted Hatfield in late 2004 with evidence that the inventory of vests was overvalued by up to $8 million, prosecutors say, she told him the company could not "take a hit" of reducing the valuation to the correct amount.

Brooks and Hatfield also are accused of failing to report more than $10 million in bonus payments to themselves and other DHB employees to the IRS.

Brooks also is accused of using DHB funds to buy or lease luxury vehicles for himself and family members, and to pay for vacations, jewelry, cosmetic surgery, country club bills, and family celebrations.

Prosecutors say he threw lavish bar and bat mitzvahs for his children in which entertainers like Tom Petty, Aerosmith, and the Eagles performed.

Brooks, who owns more than 100 horses and races them at harness tracks around the country, also used DHB funds for his horse racing business, prosecutors have said.

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During the bail hearing, Assistant US Attorney John G. Martin argued that Brooks was a flight risk and should not be granted bail because he may have millions in assets hidden overseas.

Brooks's lawyer, Paul Shechtman, said that Brooks wasn't a flight risk, noting that he had moved back to New York from London earlier this year despite knowing he could be arrested in the case.

US District Judge Joanna Seybert ordered the hearing continued until Monday.

Also yesterday, the Securities and Exchange Commission filed related civil charges against Brooks, accusing him of manipulating DHB's earnings and funneling millions of dollars out of the company through fraudulent transactions.

If convicted, Brooks and Hatfield could face up to 70 years in prison.

© 2007 Associated Press

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