DHB receives Wells Notice from SEC staff recommending a civil suit

Long Island Business News, May 26, 2006 by Henry E. Powderly II

The Securities and Exchange Commission thinks the inventory adjustments that have held up DHB's year-end financials were not mistakes, they were fraud. After market close Thursday, the limping body-armor maker received a Wells Notice from the staff of the SEC recommending a civil suit against DHB.

Trading of DHB's stock was halted Friday, after the price fell 18 percent to $1.57 per share. According to NasdaqTrader.com, trading was stopped pending the release of material news.

A call to DHB was not immediately returned.

According to Thursday's statement, the SEC suggests that DHB violated antifraud and reporting rules. Specifically, the SEC said it believes DHB recorded false inventory levels in 2005 to beef up its profit.

The SEC said it may seek a temporary restraining order, preliminary injunction, permanent injunction, the appointment of a corporate monitor and civil money penalties.

In March, DHB had initially said it would not meet deadline to file its fourth-quarter and 2005 results because it was analyzing inventory restatements recorded in several of its quarters. Then, the Woodbury based company said it expected to restate results for several quarters when the analysis was completed. But DHB has yet to file, and the American Stock Exchange has run out of patience. This week, the AMEX told DHB it would remove the company from its market if the comply did not submit a plan for filing the long-overdue financials.

The AMEX also warned the company that the May resignation of DHB Director Jerome Krantz has caused the company to be further incompliant. The SEC demands companies have an audit committee of at least three independent board members, and Krantz was the committee chairman.

David H. Brooks, chief executive officer, has been under SEC investigation for some time regarding his executive compensation. For 2004, Brooks was Long Island's most compensated man with a combined compensation package of $72.6 million, propelled by his cashing out of $69.9 million of company stock, according to LIBN's June 2005 executive compensation survey.

Shareholders have filed numerous lawsuits against DHB since Sept. 16, 2005, alleging improprieties from insider trading to concealing defects in some of its body armor.

DHB now has the opportunity to submit a written statement to the SEC regarding the Wells Notice. And according to the statement, DHB is already in discussions with SEC staff.

Shares of DHB (AMEX: DHB) fell nearly 15 percent to $1.68 per share in Friday pre-market trading. The company's troubles have pulled it farther from its 52-week high of $9.48.