David Brooks found guilty in stock fraud trial

David Brooks leaves federal court in Central Islip. David Brooks leaves federal court in Central Islip. (Feb. 24, 2009) Photo Credit: James Carbone

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Body-armor magnate David Brooks was convicted Tuesday of all 17 counts against him after a trial in federal court on charges that he orchestrated a massive stock fraud scheme, and his co-defendant, Sandra Hatfield, was found guilty of 14 of the 16 counts against her.

Brooks and Hatfield were each charged in a 16-count indictment with conspiracy; securities, wire and mail fraud; insider trading; and obstruction of justice. In addition, Brooks was charged with a 17th count -lying to auditors. Hatfield was acquitted of the mail and wire fraud charges.

Both face 25-year maximum sentences on many of the counts.

Lead federal prosecutor Christopher Ott declined to comment, as did Brooks' lead defense attorney, Kenneth Ravenell, after the 11-member jury -- six men and five women -- returned their verdict. Hatfield attorneys Maurice Sercarz and Roland Riopelle also declined to comment.

The trial in Central Islip, probably the longest in the history of the Eastern District, lasted eight months, and the jury deliberated for 14 days.

The case was a joint effort of the FBI and the IRS. Brooks was convicted of siphoning $6 million from his DHB Industries for purely personal expenses. Brooks also was accused of illegally making $185 million, and Hatfield $5 million, through a stock scheme.

Brooks had built the Westbury company into the major manufacturer of body armor for the U.S. military in Iraq and Afghanistan. Hatfield was chief operating officer. Prosecutors did not claim that any of the body armor was defective, and testimony showed that Hatfield was obsessed with producing a quality product for U.S. soldiers.

The company, which is no longer affiliated with Brooks, changed its name to Point Blank Solutions and moved to Pompano Beach, Fla. It recently declared bankruptcy. Brooks was forced out in 2006.

Before the arrest, Brooks' public notoriety was confined to media reports about a lavish bat mitzvah he threw for his daughter Elizabeth in 2005 that cost between $8 million and $10 million, and featured 50 Cent, Kenny G. and Steve Tyler of Aerosmith as the entertainment. The government's charges were not untypical for white-collar cases -- involving allegations of a pump-and-dump stock scheme, and the theft of company money to pay for personal expenses.

The stock scheme allegedly involved inflating the value of the company stock from about $2 to $20 a share through a number of techniques, including vastly inflating the company's inventory of body armor.

But the amount of money involved -- almost $200 million -- revelations of Brooks' over-the-top lifestyle, and the increasingly unusual courtroom sideshow surrounding the case combined to make the trial among the more bizarre in memory.

For instance, Brooks was accused of using company money illegally to purchase a $101,000 belt buckle in the shape of an American flag, encrusted with diamonds, rubies and sapphires.

And it's not everyday that an FBI agent walks into a courtroom in the middle of a trial and seizes the contents of a defendant's wastebasket as part of a still ongoing investigation into whether Brooks tampered with the jury.

Or the defense asserts that the payment of company money to prostitutes might be an acceptable technique to motivate employees.

Or a defendant says he is entitled to have his company pay for the grave of his mother, plastic surgery for his former wife, camp tuition for his children, flights between Atlanta and Madison, Wis., so a daughter could attend a Halloween party, a $60,000 sculpture of a Wall Street bull, family trips to St. Barts and St. Tropez. Or allegedly he drains millions of dollars through a shell company to pay for the upkeep of harness stables.

Brooks was the owner of the largest stable of trotting horses in North America, but he now maintains he has handed the equine empire over to relatives.

Defense attorneys said Brooks was entitled to the money for personal expenses through agreements approved by company officers.

And attorneys for Brooks and Hatfield argued that they had built the company up and were entitled to be rewarded for their efforts.

Prosecutors responded that the documents justifying the personal expenses were forgeries, noting that one important one, in a prominent headline, misspelled the word "unanimous" as "unaimous.".

Prosecutors scoffed at the idea that part of the defense was that Brooks and Hatfield were patriots who provided quality goods for the military.

"And now they have the audacity to come before you and talk about how they protect soldiers . . . wrapping themselves in the American flag," said prosecutor Christopher Caffarone.

"There's only one American flag that Mr. Brooks cared about. This one. The one encrusted with diamonds and rubies and sapphires," Caffarone said holding up the $101,000 belt buckle. "And Mrs. Hatfield stood by him at every step."

While arguing for the innocence of his client, defense attorney Kenneth Ravenell told jurors that the government would have liked for them to think that Brooks was "not nice, loudmouth, boorish, ornery, uncouth."

Rather, Ravenell said, his client was "hard as nails, obsessive, brilliant, committed, risk taking."

Part of the reason for the length of the trial was the number of witnesses called, and part of the reason, according to courtroom observers, was the extraordinary effort for fairness Judge Joanna Seybert made in allowing Brooks' defense team to argue numerous, lengthy sidebars on seemingly every point of law.

But she tempered her tolerance on a few occasions, once saying that lead defense attorney Kenneth Ravenell was engaging in McCarthyism and another time warning him not to file frivolous motions.

While the prosecution and defense called a total of 70 witnesses, two potentially major witnesses were not called for unexplained reasons, despite drawn-out legal wrangling over whether they could be called to testify.

Defense attorneys eventually declined to call former DHB board member Gary Nadelman. Nadelman had testified before the SEC that Brooks was entitled to have the company pay for his personal expenses. Prosecutors said that Nadelman, in a later debriefing agreement with the FBI, said he was not telling the truth to the SEC, and that Brooks did not get approval to have the company pay for personal expenses.

For their part, prosecutors eventually declined to call one of Brooks' veterinarians, Seth Fishman, who would have supposedly testified that Brooks was convinced that pills existed that would wipe out the memory of the chief government witness, and wanted him to obtain the pills.

That key government witness, Dawn Schlegel, the former chief financial officer of Brooks' company, had originally been indicted in the case, but pleaded guilty in return for leniency, and agreed to testify for the government. She was on the witness stand for 23 days, most of it undergoing a brutal cross-examination by Brooks' lawyers.

In one of the more bizarre episodes in the trial, defense attorneys tried to undermine Schlegel's overall credibility by saying one of her e-mails showed that she had lied about her sex life, and had more than the one-day affair with a colleague at DHB, as she had testified.

But Schlegel and prosecutors said that the part of the e-mail about her sex life was a forgery. And Judge Seybert held Brooks in contempt when he refused to disclose the source of the e-mail.

Schlegel supported prosecutors' contentions that the documents supposedly justifying company payments for Brooks' expenses by testifying that one of those documents "magically . . . appeared" in her file years after it was purported to have been written.

Another key government witness, who said he had complained about inflation of company's profits, said Brooks became outraged "flung . . . water over me" from a bottle, cursed and threatened him. That witness, Travis Brooks, no relation to David Brooks, was the former controller of a DHB subsidiary,

Defense attorneys for David Brooks maintained he had no involvement in much of the alleged wrongdoing.

But one witness, DHB president and former four-star Army general Larry Ellis, testified that Brooks had such intimate control over the company's finances that he had to get approval from him for a $200 charitable donation.

Further complicating the trial was apparent bickering among jurors and personal difficulties before they reached a verdict.

Two jurors sent out notes complaining that other jurors had been refusing to deliberate. One juror was having a "romantic relationship" with another member of either the panel or alternates, Seybert said. That juror had been coming in late until the judge threatened to remove him from the panel unless he showed up on time.

In addition, one juror said he had to take several days off from deliberations because he had to serve three days for a minor offense, and one juror was dismissed from the panel because she was scheduled to give birth in five weeks and had started having contractions.

Brooks's and Hatfield's days on trial are not over.

Brooks and Hatfield face a separate hearing in October on how much of the money of the total of $190 million made on the stock scheme should be forfeited to the government.

Brooks also faces at least two more trials: one for income-tax evasion and one for contempt of court for refusing to reveal the sources of an personal e-mail from Schlegel.

Brooks may additionally face other charges. Federal prosecutors and FBI agents have ongoing investigations into how he got tranquilizers while in custody and into possible jury tampering.

Seybert banned Brooks' brother, Jeffrey Brooks, and one of his paralegals, who is also David Brooks' girlfriend, Jil Klinkert, from the courtroom, after one of the tranquilizer incidents.

And FBI agents have gotten fingerprints and writing samples from Jeffrey Brooks, Klinkert and a second paralegal, Aaron Hendel, as part of the jury-tampering investigation.

Brooks repeatedly complained about the conditions in the various jails he has been held in since his bail was revoked this year after FBI agents found $3.2 million in several overseas accounts despite Brooks' claiming he had returned all his assets from abroad.

Brooks insisted that because he's Jewish he was entitled to kosher food while in detention, which he was given.

He also sent $4 million to Muslim holy men in Senegal in 2007 in order to help him get acquitted, according to court testimony. The holy men, known as marabouts, use prayer and cattle sacrifices in their rituals.

In addition to the money to the imams, Brooks has, according to court records, spent almost $25 million in the past two years on attorneys and financial experts.

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