Former executives of US body armor firm arrested
WASHINGTON (Reuters) – U.S. authorities arrested two former
top executives of a major body armor supplier to the U.S.
military and law enforcement agencies on Thursday and charged
them with criminal securities fraud and insider trading.
Federal prosecutors alleged former Chief Financial Officer
Dawn Schlegel and former Chief Operating Officer Sandra
Hatfield manipulated DHB Industries Inc.’s books “to reap
millions of dollars of profits through insider trading.”
The lawsuit was a fresh blow to DHB. The U.S. military last
year recalled thousands of protective vests sold by DHB’s Point
Blank Body Armor Inc. unit on quality concerns.
The company was recently delisted from the American Stock
Exchange. Last month it placed Chief Executive David Brooks on
indefinite leave pending the outcome of investigations.
Shares in Pompano Beach, Florida,-based DHB were down 2.6
percent at $3.00 each at midday in Pink Sheets trading.
Prosecutors on Thursday accused Schlegel and Hatfield of
inflating DHB’s earnings and profit margins between 2003 and
2005 to meet Wall Street expectations.
The two former executives also sold thousands of DHB shares
“based on inside information, netting a profit of over $8
million,” prosecutors charged.
U.S. Attorney for the Eastern District of New York Roslynn
Mauskopf said, “As a result of the fraud scheme, the investing
public lost millions of dollars while the defendants lined
their own pockets with a fortune in ill-gotten gains.”
Attorneys for the two former DHB executives could not
immediately be reached for comment.
The charges in the criminal indictment carry maximum
sentences of up to 25 years in prison and a $250,000 fine.
Prosecutors said they are also seeking forfeiture of $8 million
in assets belonging to the defendants.
The Securities and Exchange Commission said it also charged
the two former executives with civil securities fraud.
The SEC said Schlegel and Hatfield “routinely overstated
the value of the company’s inventory and directed the booking
of numerous fraudulent journal entries in order to reduce the
company’s cost of goods sold.”
“By manipulating DHB’s gross profit margin, Schlegel and
Hatfield knew that investors would be given a false portrait of
DHB’s operating results,” said SEC Enforcement Division
Director Linda Thomsen in a statement.
The SEC said its investigation is continuing.