A U.S. regulator charged three former directors of a military contractor with involvement in a massive accounting fraud, after a jury had convicted the company's founder of orchestrating the $190 million scheme.
The U.S. Securities and Exchange Commission accused Jerome Krantz, Cary Chasin and Gary Nadelman of being willfully blind to numerous red flags of fraud at DHB Industries Inc, a body armor maker now known as Point Blank Solutions Inc .
In a complaint filed in a Florida federal court, the SEC said these defendants were outside directors who served on DHB's audit committee from at least 2003 to 2005.
It said their lack of oversight allowed senior management to manipulate results, and to funnel millions of dollars to DHB's founder and chief executive, David Brooks, to pay for luxury cars, costly vacations, art and prostitution services.
This massive accounting fraud permeated throughout an entire company, Eric Bustillo, director of the SEC regional office in Miami, said in a statement. As the fraud swirled around them, Krantz, Chasin and Nadelman ignored the obvious.
The SEC said the three defendants live in Old Westbury, New York. The civil lawsuit seeks to recover improper gains, impose civil fines, and bar them from serving on other boards.
Amy Millard, a lawyer for Chasin, said: Mr. Chasin faithfully carried out his role as an outside director of DHB. He looks forward to a resolution of this matter.
Lawyers for the other defendants did not immediately return calls seeking comments.
The SEC said it also charged Point Blank, which settled by accepting a permanent injunction against future violations.
Point Blank filed for bankruptcy protection last April, and its agreement requires approval by a federal bankruptcy judge.
Last September, a federal jury in Central Islip, New York, convicted Brooks and former DHB Chief Operating Officer Sandra Hatfield of running a fraud at the Westbury, New York company.
Prosecutors accused the pair of manipulating financial records to boost earnings and profit margins, and thus inflate DHB's stock price. Neither has been sentenced.
Point Blank is now based in Pompano Beach, Florida.
The SEC case is SEC v. Krantz et al, U.S. District Court, Southern District of Florida, No. 11-60432.
(Reporting by Jonathan Stempel; editing by John Wallace)