Litigation Release No. 20345 / October 25, 2007

Accounting and Auditing Enforcement Release No. 2746 / October 25, 2007

Securities and Exchange Commission v. David H. Brooks, (U.S. District Court for the Southern District of Florida, Civil Action No. 07-61526-CIV-Altonaga/Turnoff (filed October 25, 2007)

The Securities and Exchange Commission today announced the filing of securities fraud charges against David H. Brooks, the former Chief Executive Officer and Chairman of the Board at DHB Industries, Inc., a major supplier of body armor to the U.S. military and law enforcement agencies. The SEC alleges that Brooks engaged in a pervasive accounting fraud at DHB between 2003 and 2005, violated insider trading laws in 2004, and used millions of dollars in corporate funds to pay personal expenses.

The SEC's complaint alleges that Brooks, with the assistance of DHB's former chief financial officer and chief operating officer, manipulated the company's gross profit margin and net income by overstating inventory values, falsifying journal entries, and failing to include appropriate charges for obsolete inventory.

According to the SEC's complaint, Brooks also funneled millions of dollars out of DHB through fraudulent transactions with a related entity he controlled. The complaint further alleges that Brooks used company credit cards and checks to pay millions of dollars in personal expenses, including luxury cars, jewelry, art, real estate, extravagant vacations, personal aircraft usage, and horse training. As a result of the misconduct by Brooks, DHB filed false and misleading financial documents with the SEC and made false statements in company press releases.

The complaint also alleges that Brooks sold his personal DHB stock for proceeds of about $186 million at the end of 2004 at the height of DHB's stock price, and did so while in possession of material, non-public information - a violation of insider trading laws.

The SEC's complaint charges Brooks with violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder, and aiding and abetting DHB's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. In its complaint, the SEC seeks a permanent injunction, disgorgement, civil penalties, insider trading penalties, and an officer and director bar. In addition, the complaint seeks reimbursement by Brooks to DHB of bonuses and profits from stock sales pursuant to Section 304 of the Sarbanes-Oxley Act.

The United States Attorney's Office for the Eastern District of New York conducted a parallel investigation of this matter. Simultaneous with the SEC's announcement of this action, the United States Attorney's Office announced the filing of charges against Brooks for securities fraud, conspiracy to commit securities fraud, insider trading, and obstructing the SEC's investigation, among other charges.

The staff's investigation is continuing.

SEC Complaint in this matter