3 charged with ignoring signs that body armor supply firm was paying for prostitutes
Members of the audit committee at a company called Point Blank Solutions allegedly discussed some unconventional expenses: The company was paying for prostitutes.
But don't look for details in records of the meetings.
"In fact, although these payments were discussed at board meetings, these discussions were concealed by omitting them from the official board minutes," the Securities and Exchange Commission said Monday as it charged three former directors with being "willfully blind to numerous red flags signaling accounting fraud."
The charges against former board members Jerome Krantz, Cary Chasin and Gary Nadelman were the latest to emerge from investigations of Point Blank, which supplies body armor to the military and law enforcement agencies. Point Blank's business boomed after the terrorist attacks of Sept. 11, 2001, but it is now in bankruptcy reorganization.
The SEC says that a lack of "internal controls" at the company enabled former chief executive David Brooks to divert at least $10 million for personal expenses. He and others allegedly misappropriated millions for cars, jewelry, vacations a "horse racing empire" and prostitutes.
Plus, more than $120,000 was used "for iPods included in gift bags for guests at a multimillion-dollar party for his daughter," the SEC charged.
Brooks was found guilty last year of criminal charges relating to the alleged fraud.
The civil charges the SEC unveiled Monday pin some of the responsibility on Krantz, Chasin and Nadelman -- all former directors who served on the board's audit committee.
"Mr. Nadelman is a good and decent man who did not willfully or knowingly do anything to justify today's SEC action," his attorney Robert C. Gottlieb said by phone.
Lawyers for the other two did not immediately respond to e-mails seeking comment.
"In regard to the SEC's recent charges, all stem from the actions of officers or directors who are no longer affiliated with our company and haven't been for several years," company spokesman Glenn Wiener said by e-mail. "We have already reached a settlement with the SEC, which is pending bankruptcy court approval."
David S. Hilzenrath
| February 28, 2011; 5:37 PM ET
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