The Securities and Exchange Commission has filed and settled securities charges against DHB Industries Inc. without the US defense contractor receiving any penalty. The maker of bulletproof vests for US law enforcement and military agencies, now called Point Blank Solutions, has consented to not committing the alleged violations in the future. SEC charges, however, are still pending against ex-DHB Industries board members Gary Nadelman, Cary Chasin, and Jerome Krantz.
The SEC claims that between 2003 and 2005, the three men let senior managers overstate data in financial reports. The federal agency also contends that as a result of the ex-board members’ “willful blindness,” ex-DHB Industries CEO David Brooks was able to take $10 million from the company and move the funds into another company under his control. Brooks, who is also accused of using another $4.7 million for personal expenses, and ex-DHB Industries COO Sandra Hatfield, were convicted of securities fraud and other charges in criminal court last year.
The SEC wants restitution and civil fines from Krantz, Chasin, and Nadelman. According to the New York Times, it is surprising that the federal regulator has actually filed civil charges against the three men. Save for perhaps a tarnished reputation, corporate directors tend to remain unscathed in cases of securities fraud. For example, no financial firms’ outside directors were named as defendants in SEC cases related to the credit crisis.
While some are expressing hope that the SEC is charting a new course with this case, it is difficult to discern at this point whether this is a one-time deal or the start of a new trend. For a while, there were concerns that the independent director post, assigned specific duties under the Sarbanes-Oxley law in 2002, might be harder to fill because of fear of liability. However, the SEC has only filed cases against them in incidents of alleged severe recklessness. Also, in an attempt to bring in good directors, companies have been offering better pay.
Are board directors held to too low of a standard that allows them to get away with too much?
Related Web Resources:
SEC Charges Military Body Armor Supplier and Former Outside Directors With Accounting Fraud, SEC, February 28, 2011
SEC charges defense contractor, 3 ex-directors, Bloomberg, February 28, 2011
For Directors at DHB Securities, SEC Keeps the Bar Low, New York Times, March 3, 2011
More Blog Posts:
Former DHB Industries CEO and COO Found Guilty of Nearly $200M Securities Fraud Scam, Stockbroker Fraud Blog, September 16, 2010
$35.2 Million Shareholder Settlement Against DHB Industries Overturned by Circuit Court, Institutional Investor Securities Blog, October 21, 2010
Contact our securities fraud attorneys to discuss your institutional investment fraud case.