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Court convicts 2 former body armor executives of illegal trading and fraud

Two former top executives of the leading supplier of body armor to the U.S. military were convicted of insider trading, fraud and tax evasion.

David H. Brooks, 53, the former CEO of DHB Industries, Inc., and Sandra Hatfield, 54, the former chief operating officer, were charged in a superseding indictment with manipulating DHB's financial records to increase earnings and profit margins, thereby inflating the price of DHB's stock.

"Corporate executives who line their own pockets at the expense of their shareholders flaunt the responsibilities they owe their companies and the investing public," U.S. Attorney Benton J. Campbell said in a statement.

The former DHB executives are accused of falsely inflating the value of the inventory of DHB's top product, the Interceptor vest, to help meet profit margin projections. The vest, designed to withstand rifle fire and shrapnel, was made for the Marine Corps and other branches of the military.

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 (5.6 million EUR), prosecutors say she told him the company "could not 'take a hit' of reducing the valuation to the correct amount."

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 (129 million EUR) and Hatfield more than $5 million (3.5 million EUR), according to the U.S. attorney's office.

Brooks and Hatfield also are accused of failing to report more than $10 million (7 million EUR) in bonus payments to themselves and other DHB employees to the IRS.

Brooks was expected to be arraigned later Thursday in U.S. District Court in Central Islip. An arraignment for Hatfield has not yet been scheduled. The names of their defense attorneys could not immediately be determined.

Brooks resigned from DHB in July 2006, about the same time the company relocated its headquarters from Westbury to Pompano Beach, Fla. Hatfield left the company in November 2005.

Hatfield was previously accused in a 2006 indictment, along with former chief financial officer Dawn Schlegel, of insider trading in the inflated vests scheme. She was released on $1 million bond in that case.

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. He also used DHB funds for his private horse racing business, prosecutors said.

He also was charged with lying to DHB's independent auditors about the inventory inflation fraud and the submission of false reports to the SEC during its investigation of DHB's executive compensation.

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

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