Military Contractor Indicted for Fraud, Tax Evasion

David H. Brooks had better hope he can mount a legal defense that is more bulletproof than the body armor that his company sold to the Army and Marines.

Federal authorities indicted Brooks, the founder of DHB Industries, and Sandra Hatfield, the company's former chief operating officer, on charges of securities fraud and tax evasion today.

The Securities and Exchange Commission added a civil lawsuit at the same time, seeking to recoup some of the $186 million that it says Brooks reaped by selling shares in the company even though he knew it was riddled with fraud.

Federal prosecutors said Brooks, Hatfield, and former finance chief Dawn Schlegel falsely inflated DHB's reported earnings and profit margins, driving up the value of their personal stock holdings.

They also "conspired to enrich themselves and their families" at the expense of DHB—which changed its name to Point Blank Solutions earlier this month—by charging the company for millions of dollars of personal expenses, prosecutors added.

And what a list of personal expenses there were: Luxury cars, jewelry, art, real estate, extravagant vacations, personal aircraft usage, horse racing, cosmetic surgery, country club bills, and $122,000 worth of iPods given as favors to guests at a multimillion-dollar bat mitzvah party for his daughter in late 2005, according to the complaint.

To top it off, Brooks and Hatfield failed to notify tax authorities about more than $10 million in cash bonuses awarded to themselves and others, prosecutors said. They also allegedly told DHB employees to conceal the bonuses from the Internal Revenue Service.

The New York Times reported last year that the Army and Marines recalled about 23,000 Point Blank vests in 2005 after Army personnel warned that they had "critical, life-threatening flaws." The Marine Corps later said there was "no evidence to suggest that . . . these vests will not protect against the threat they were designed to defeat."

The company replaced the vests anyway.

Brooks was scheduled to be arraigned this afternoon at federal court in East Islip, New York. Neither he nor his lawyer could be reached for comment.

Hatfield, who is scheduled to be arraigned on Friday, also could not be reached for comment.

by Mark Stein