Government Forfeits More Than $143 Million in Fraud Proceeds Seized from David H. Brooks
U.S. Attorney’s Office for the Eastern District of New York’s Largest Civil Forfeiture Recovery Will Compensate Thousands of Victims
Earlier today, U.S. District Judge Joanna Seybert entered an order forfeiting more than $143 million in assets that had been seized from David H. Brooks, the now-deceased founder and former Chief Executive Officer of DHB Industries, Inc. (DHB), a supplier of body armor to the U.S. military and law enforcement agencies. In 2010, following an eight-month trial, Brooks was convicted of mail and wire fraud, securities fraud and obstruction of justice. He subsequently pleaded guilty to filing false tax returns. The Court had ordered the seized assets to be used to pay forfeiture and victim restitution as part of Brooks’s sentence. Brooks appealed his fraud convictions and sentence, but died in prison while that appeal was pending. As a result, his fraud convictions and sentence were vacated. The seized assets, however, remained restrained in a parallel civil forfeiture action previously filed by the government. Pursuant to a global settlement agreement reached in the civil forfeiture action, the forfeited assets will be made available to compensate close to 90 percent of the approved losses suffered by thousands of investor victims and by DHB’s successor, SS Body Armor I, Inc. (SSBA), through the remission process administered by the Department of Justice (DOJ).
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the forfeiture.
“This case demonstrates the critical role that civil forfeiture plays in depriving criminals of their ill-gotten gains and putting those funds back in the hands of victims,” stated United States Attorney Donoghue. “Brooks’s sentence – which justly included criminal forfeiture and victim restitution – was frustrated for reasons having nothing to do with his well-established guilt. While justice may have been delayed, it will not be denied. Our Office remains dedicated to vindicating the rights of victims and insuring that crime does not pay.” Mr. Donoghue thanked the Internal Revenue Service (IRS) and the U.S. Marshals Service for their assistance in this case.
“Brooks was rightfully sentenced to a lengthy prison term and ordered to pay more than $90 million in victim restitution following his conviction, but, due to circumstances out of the government’s control, the restitution order was abated,” stated FBI Assistant Director-in-Charge Sweeney. “Today’s civil forfeiture order effectively reinstates the financial sanctions imposed on Brooks and will allow the government to compensate Brooks’s victims for the bulk of their losses. Through these type of civil forfeiture actions, the FBI will continue to seek justice for victims and remind criminals that their misdeeds will not be rewarded.”
As proven at his criminal trial, Brooks committed a series of fraud schemes that were varied and pervasive. Brooks, along with his co-conspirators, manipulated DHB’s books and records and then lied to auditors in an effort to cover-up the schemes. In late 2004, by which time the accounting fraud had inflated the price of DHB stock to over $20 per share, Brooks began selling millions of DHB shares, netting him over $185 million. After these insider sales, the price of DHB stock fell to pennies on the dollar and the stock was de-listed from the American Stock Exchange. In another scheme, Brooks looted DHB by using corporate funds to finance his family’s lavish lifestyle, including a multi-million-dollar bat mitzvah party for his daughter, vacations in exotic locations and cosmetic surgery.
In August 2013, Brooks was sentenced to 17 years in prison. As part of his sentence, the Court ordered Brooks to: forfeit approximately $65 million; pay an $8.7 million fine; pay approximately $2.9 million in restitution to the IRS; and pay approximately $91.5 million in restitution to thousands of investor victims and to SSBA, which sought bankruptcy protection in the wake of Brooks’s fraud. The forfeiture and restitution were to be satisfied from the assets that the government seized from Brooks, including funds in accounts at a number of financial institutions, foreign currency, gold Krugerrands, luxury cars, jewelry and a commissioned replica of the famous Wall Street “Charging Bull” statue.
Brooks died in prison in October 2016. In September 2017, the Second Circuit Court of Appeals ruled that Brooks’s obligation to pay approximately $91.5 million in victim restitution abated because he died before the completion of his appeal. With the abatement of the restitution order, along with the fraud convictions, forfeiture and fine, Brooks’s death effectively erased more than $165 million in criminal penalties and victim restitution. Brooks’s tax convictions and tax restitution order, however, survived his death as they were based on his guilty plea to separate tax charges.
Following Brooks’s death, the government prosecuted its civil forfeiture action, which was not abated, against the seized assets. The civil forfeiture action proceeded on many of the same fraud allegations presented in the criminal case as well as on allegations that Brooks and his family laundered the fraud proceeds through a web of trusts, tax shelters and shell companies that Brooks created and placed in his family members’ names. The global settlement resolves the civil forfeiture action as well as other litigation involving Brooks’s victims and the Securities and Exchange Commission.
The forfeiture of more than $143 million represents the largest civil forfeiture recovery by the U.S. Attorney’s Office for the Eastern District of New York. Pursuant to the remission process, the DOJ has exercised its discretion to use the forfeited assets to compensate victims. It is expected that the funds to be remitted to investors and SSBA will reimburse these victims for approximately 90 percent of their DOJ-approved losses. The settlement further provides for the full payment of the approximately $2.9 million tax restitution order to the IRS.
The government’s case was prosecuted by Assistant United States Attorneys Laura D. Mantell, Tanya Y. Hill, Karin Orenstein and Artemis Lekakis.
E.D.N.Y. Docket No. 10-CV-4750