David H. Brooks, Defense Contractor Who Spent $10 Million On Daughter's Bat Mitzvah, Charged With Insider Trading

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CENTRAL ISLIP, N.Y. � Two former top executives of the nation's leading supplier of body armor to the U.S. military accused of insider trading in an alleged $190 million scheme lied to push up the company's stock, a federal prosecutor said at the start of their trial Monday.

"This is a case of the naked greed of two people," U.S. Assistant Attorney Richard Lunger said in his opening statement.

David H. Brooks, the founder and former chief executive of DHB Industries, Inc., and Sandra Hatfield, the former chief operating officer, are accused of falsely inflating the value of the inventory of the company's top product, the Interceptor vest, to help meet profit margin projections. Brooks also is accused of using the company treasury as his own private bank account, spending $5 million on unauthorized expenditures.

Prosecutors say Brooks splurged on six-figure parties and other extravagances, including a diamond encrusted belt buckle and a Bentley. Brooks also allegedly spent millions of company funds on his horse racing hobby and allowed his daughter to use the company jet to travel to a Halloween party in Wisconsin.

Brooks' attorney Kenneth Ravenell told jurors that all the expenditures were approved by the company's board and various agreements between Brooks and the company.

"Mr. Brooks was entitled to what he received," Ravenell said.

Both Brooks and Hatfield have pleaded not guilty.

Brooks resigned from DHB in July 2006, about the same time the company relocated its headquarters from Westbury, N.Y., to Pompano Beach, Fla., where it operates as Point Blank Solutions Inc. A Point Blank spokesman had no comment on the trial.

Hatfield left the company in November 2005.

The Interceptor vest, designed to withstand rifle fire and shrapnel, was made for the Marine Corps and other branches of the military. There are no allegations that the vests or other DHB products were unsafe.

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 and Hatfield more than $5 million, according to the U.S. attorney's office.

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

Brooks and Hatfield also are accused of failing to report to the IRS more than $10 million in bonus payments they and other DHB employees received.

The company's former chief financial officer, Dawn Schlegel, has pleaded guilty to conspiracy to commit fraud and has agreed to be a prosecution witness against her two former co-workers.

Hatfield's lawyer, Roland G. Riopelle, said during his opening statement that his client had no training as an accountant and was more concerned with meeting production quotas as the military sought increasingly more vests to equip soldiers fighting in Iraq and Afghanistan.

Riopelle said Hatfield relied on Schlegel's instructions on financial matters.

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.

Prosecutors say he threw lavish bar and bat mitzvahs for his children in which entertainers such as Tom Petty, Aerosmith and the Eagles performed.

Brooks had been freed on a $400 million bail package until earlier this month, when U.S. District Judge Joanna Seybert found he and his brother had engaged in schemes to hide assets from the government and the court. He is appealing her revocation of bail.

Hatfield is free on $1 million bond.

The trial in U.S. District Court in Central Islip is expected to last several months.

(This version CORRECTS Schlegel's guilty plea to conspiracy to commit fraud.)

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