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Quality By Design

"Quality by Design"

David H. Brooks, former chief executive of the company named after himself DHB Industries Inc., is a greedy war profiteer that sounds like the long lost love child of Enron’s Kenneth Lay and Martha Stewart.

Brooks developed DHB in 1992 after he purchased the fledgling company "from the verge of bankruptcy." Earlier that year, the Securities and Exchange Commission penalized him while working at a brokerage firm with his brother. A hefty $405,000 fine by the SEC and an $800,000 investment later, Brooks was back in business. (DHB has two divisions, DHB Armor Group and DHB Sports Group, the latter produces protective gear for athletes.)

In 1998, DHB received a contract to be the lone supplier for armored vests for the U.S. armed forces. It was supplemented when the U.S. went to war in Afghanistan and Iraq. In 2001, sales were at $98 million.

Sarah Anderson, from the Institute for Policy Studies, writes:

His fortunes turned dramatically in the lead-up to the Iraq war, when Brooks successfully lobbied for an exclusive contract to make the vests used in the body armor now issued to every U.S. soldier in Iraq. The Pentagon’s largesse boosted DHB’s stock, which in turn sent Brooks’ pay, including stock options, skyrocketing, from $525,000 in 2001 to $70 million dollars in 2004.

Charlie Cray, of the Center for Corporate Policy, wrote that Brooks’ compensation raise constituted a 13,349% pay increase. Meanwhile, the federal minimum wage continues frozen at $5.15 for the last decade and corporate payouts to executives are on the rise, further spreading the pay-gap between top execs and their employees.

Timothy O’Brien wrote for the New York Times in January 2006 that DHB claimed over $340 million in sales last year. And while the exclusive contract slowed the deployment of the body armor until nine months after the war started, over 23,000 DHB vests were recalled because they failed to pass tests to stop a 9mm round.

The Marines and the Army recalled about 23,000 Point Blank vests from the field last year after The Marine Corps Times reported that the Marines acquired the vests despite warnings from Army personnel that the vests had what the newspaper described as "critical, life-threatening flaws."

Michael Moss of the New York Times wrote that a Pentagon study concluded that roughly 80 percent of the upper-body wounds to U.S. Marines in Iraq that resulted in death could have been prevented if the soldiers had more body armor. O’Brien wrote that DHB Industries said it was the Department of Defense that outlined the armor specifications and not the manufacturer. Producing bad products was the least of Brooks’ worries, wrote Anderson, "Instead, the Defense Department is focusing on alleged financial wrongdoing at DHB – a matter further from their own hands."

And so like Al Capone and his tax evasion and Augusto Pinochet and his money laundering, David H. Brooks’ downfall will likely have more to do with financial hanky-panky than the possibility that troops were killed because of his company’s shoddy vests.

In late 2004, the Brooks family sold millions (reportedly $186 million, according to O’Brien) in stock at the end of 2004 just prior to serious concerns arose regarding the faulty body armor. His holdings in the company decreased by over two-thirds from 48 to 15 percent. The sale dropped the stock price from $22 to $6.50 per share.

Last November, in what sounds like an episode of MTV’s "My Sweet Sixteen" gone mad, Brooks reportedly spent $10 million on the Bat Mitzvah party for his daughter held atop of the Rockefeller Center in New York. (A few pictures can be found here.)

Earlier this month, Brooks was placed on administrative leave by the DHB Board of Directors, until his "legal problems are over."

Brooks is currently under federal, state and internal investigations regarding his stock-based compensation. Brooks cashed out nearly $70 million in DHB stock in fiscal 2004. DHB is also under Securities and Exchange Commission investigation regarding alleged fraud in its inventory records. According to Monday’s statement, Brooks will have no authority at DHB. Retired General Larry Ellis, DHB’s president, will assume the role of acting chief executive.

And a quick update on the stock:

DHB’s stock, which last traded on the AMEX at $1.57 per share, opened on the pinks July 7 at 87 cents per share and has since crept higher. Shares of DHB gained 8 cents, more than 8 percent, to trade at 98 cents per share Monday morning.

At this rate, Brooks’ daughter will have to settle for a drive-in wedding ceremony in Las Vegas. Aerosmith and 50 Cent will be unable to attend, but Elvis has R.S.V.P.’d.

Other Posts in the Series

"Merchants of Misery" and the "Do-Less-Than-Nothing" Congress (introduction), 04.29.06
Houston, We Have a Problem (Halliburton), 05.06.06
Friends in High Places
(Bechtel), 05.20.06
Transforming Risk into Opportunity (Custer Battles), 06.03.06
The Insider
(General Dynamics), 06.25.06
A Day Late and a Dollar Short
(Parsons), 07.01.06
Justice in a Sea of Destruction?
, 07.08.06
To the U.S. "Thanks for the Money!" –Halliburton
, 07.15.06
Your Tax Dollars at Work
, 07.22.06

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