Executives in charge of a controversial body-armor manufacturer have lost another ruling in court.

 

Last month, former CEO David Brooks and former chief operating officer Sandra Hatfield of DHB Industries were convicted of orchestrating a $190 million fraud by manipulating the company’s books to inflate earnings, profit margins and stock price. Their scheming came about after DHB Industries’ body armor—which had been worn by law enforcement and soldiers—was found to be faulty, causing a drop in the company’s value on Wall Street.

 

Next, the executives worked out a deal that would have shielded them from paying millions of dollars back to the company, whose name had switched to Point Blank Solutions. But the 2nd Circuit Court of Appeals threw out the $35.2 million settlement, ruling that a district court judge lacked the authority to accept a deal that insulated Brooks and Hatfield from liability under the Sarbanes-Oxley Act.

 

Only the Securities and Exchange Commission has the authority to exempt executives from the law which requires CEOs and CFOs to reimburse their companies for bonuses and profits from stock sales that derive from filing a false financial report.

 

During the fraud trail, it was revealed that Brooks had billed his company for more than $6 million in personal expenses that included luxury cars, a $100,000 American-flag belt buckle encrusted with rubies, sapphires and diamonds, university textbooks for his daughter, pornographic videos for his son, plastic surgery for his wife, a burial plot for his mother, and prostitutes for his employees and himself.

 -Noel Brinkerhoff

 

2nd Circuit Rejects $35M Pact's 'End Run' Around Liability for Former Executives (by Mark Hamblett, New York Law Journal)

At Military Contractor’s Trial, a $100,000 Buckle (by AG Sulzberger, New York Times)

Viray v. Brooks (2nd Circuit Court of Appeals) (pdf)