David H. Brooks, Founder And Former Chief Executive Officer Of DHB Industries, Inc., Sentenced To 17 Years In Prison For Insider Trading, Fraud, Lying To Auditors And Obstruction Of Justice
Earlier today, in Central Islip, New York, the former Chief Executive Officer of a Long Island-based supplier of body armor to the U.S. military and law enforcement agencies was sentenced to 17 years in prison for his leadership role in a $200 million fraud and obstruction of justice case, to be followed by five years of supervised release. DHB Industries, Inc. founder David H. Brooks, who was convicted in September 2010 on 14 counts of conspiracy, mail and wire fraud, securities fraud, obstruction of justice, and lying to auditors and subsequently pleaded guilty to conspiracy to defraud the IRS and filing false income tax returns, was also ordered to pay a fine of $8.7 million, and to forfeit approximately $65 million in illegally-gained profits to the United States. The court will determine the amount Brooks must pay in restitution to the victims of his fraud scheme within 90 days. The sentence was imposed by United States District Judge Joanna Seybert.
The sentence was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; George Venizelos, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Richard Weber, Chief, Criminal Investigation, Internal Revenue Service (IRS).
“DHB Industries made body armor that protected the men and women of the U.S. military, who risk their lives to keep us safe. To David Brooks, it was merely a vehicle for plunder and a means to feed his own greed. Brooks fancied himself a master of the sport of kings. In reality, he was a selfish man who looted his company, defrauded his investors, lied to the SEC and the investing public, and sought to profit through insider trading right before the collapse of his house of cards. And he demonstrated time and time again that he believes he is above the law. Today, David Brooks learned otherwise,” stated United States Attorney Lynch. “Thanks to the hard work and dedication of law enforcement, the investing public can rest easier knowing that for the next 17 years, Brooks will not be able to lie, cheat and steal from anyone else.” Ms. Lynch thanked the FBI and IRS for leading the investigation and the Defense Criminal Investigative Service for its assistance in the case.
FBI Assistant Director-in-Charge Venizelos stated, “David Brooks repeatedly stole from his company, stole from investors, lied to auditors and regulators, and traded on inside information. He did all this to finance an obscenely lavish lifestyle paid for by his victims. Today’s sentencing is the justice the government has been seeking.”
“Tax fraud was integral to sustaining Brooks’s securities fraud schemes and fueling his lust for money,” stated IRS Chief, Criminal Investigation Weber. “Brooks falsified his income tax returns in order to prevent law enforcement from discovering that he was looting DHB. IRS-CI will turn over every stone to find where criminals are hiding and spending their illegal proceeds. This case should send a message to those who feel that they can commit fraud and evade taxes -- their consuming greed will always leave a money trail.”
During an eight-month trial, the government’s evidence proved that Brooks and others conspired to loot DHB for personal gain. Brooks concealed his control of a related company in order to funnel more than ten million dollars from DHB to support a thoroughbred horse-racing business. Brooks also falsely inflated inventory at a DHB subsidiary to artificially boost reported profits, and then lied to auditors in an effort to cover up the schemes.
Although Brooks was initially released on bail conditions requiring that he account for and repatriate all foreign assets, he was re-arrested and bail was revoked in January 2010 after the government discovered that Brooks had concealed millions of dollars in accounts in the tax haven principality of San Marino as well as in London, England. He has remained in custody ever since. During his trial, Brooks smuggled prescription pills into the courtroom, created a fake e-mail that his attorney tried to use to cross examine a government witness, and then disobeyed a court order to produce evidence of the email’s authenticity prompting the court to hold him in contempt.
Unauthorized and Undisclosed Compensation
Brooks stole more than $6 million from DHB’s coffers to finance a horse-racing business that had no relationship to DHB’s business and to finance a lavish lifestyle that included corporate-paid trips to exotic locations, the purchase of a luxury car and an armor-plated vehicle, personal jewelry, plastic surgery for his wife, a burial plot for his mother, a plasma television for his son’s bedroom, country club bills, $40,000 leather bound invitations for his son’s Bar Mitzvah and a $101,000 belt buckle encrusted with diamonds, sapphires and rubies. To cover up his theft, Brooks created, and directed others to create, fictitious documents and misclassified these personal expenses as business expenses on DHB’s books and records. In yet another scheme, Brooks scalped tickets to sporting events and concerts that DHB paid for and then kept more than $300,000 that he generated from selling the company’s tickets.
The Related Party Scheme
Brooks also concealed the related party status of Tactical Armor Products (TAP), a company supposedly run independently of DHB by Brooks’ wife, but in fact wholly controlled by Brooks. Through this scheme, Brooks siphoned more than $10 million out of DHB to pay for obsolete body armor plates sold by TAP. The profits from these concealed related party transactions were used to pay for more than $16 million in Brooks’s personal horse racing business, jewelry and cash investments. To conceal the scheme and deceive auditors and investors, Brooks created fraudulent multi-million dollar transactions and doctored internal DHB documents.
The Accounting Frauds
Brooks also engaged in accounting fraud schemes designed to increase the net income and profits that DHB reported in its press releases and filings with the Securities and Exchange Commission (SEC) by falsely inflating the value of DHB’s existing inventory, adding non-existent inventory to the company’s books and records, and fraudulently reclassifying expenses.
Lying to Auditors and Obstruction of Justice
Brooks attempted to cover up several of the schemes by obstructing the SEC’s investigation. Brooks and others submitted false reports to the SEC during an investigation of DHB’s executive compensation and related party schemes that began in March 2003; Brooks lied to DHB’s independent auditors about the inventory inflation fraud; and when auditors tried to look at the phony inventory, Brooks falsely claimed that it had been destroyed in a hurricane. Brooks later admitted that the supposed inventory never actually existed.
In November 2004, several days after DHB filed a financial report with the SEC and sent shareholders a statement containing many of the same misrepresentations and omissions described above, Brooks sold more than $69 million of DHB stock. In December 2004, he sold an additional $116 million in stock knowing that that DHB’s stock price of $20 per share had been artificially-inflated through his many and varied schemes. After those insider sales, DHB stock plummeted to pennies per share and the company was de-listed from the American Stock Exchange.
The government’s case was prosecuted by Assistant United States Attorneys Richard Lunger, Christopher Ott, Christopher Caffarone, James Knapp, Kathleen Nandan, Laura Mantell, Bonni Perlin and Mary Dickman.
This prosecution was the result of efforts by President Barack Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants. For more information on the task force, visit http://www.StopFraud.gov.
DAVID H. BROOKS
Old Westbury, New York