US: The Rise and Fall of a War Profiteer
In November 2005, bulletproof vest maker David H. Brooks made national headlines when he blew a pile of his war windfalls on a celebrity-studded bash in New York City's Rainbow Room. For Brooks, the highlight of the $10 million gala was a performance by rockers from Aerosmith. So pumped was the middle-aged Long Island businessman that he reportedly donned a hot pink, metal-studded suede pantsuit to cavort onstage with Steven Tyler.
While Brooks was enjoying his rock star fantasy, dark clouds were forming over him and his company, DHB Industries. The stock was in the toilet, the Securities and Exchange Commission was investigating him, and then there was the mood-killing matter of the military recalling his company's bulletproof vests over concerns about their bulletproofness. In hindsight, the pink-suited Brooks showed all the symptoms of a man who feared his partying days were numbered.
And indeed, as of this week, his reign as America's most ostentatious war profiteer does appear to be over. On July 10, the DHB Board of Directors issued a terse statement to the effect that Brooks had been put on indefinite "administrative leave" pending the outcome of unspecified investigations.
The Justice and Defense Departments are jointly investigating Brooks for possible criminal fraud and insider trading. The SEC had already been looking into the company in response to shareholder lawsuits charging that DHB execs carried out a "pump-and-dump" scheme to artificially inflate profits before selling off a boatload of their stock in 2004. Brooks personally sold about $186 million worth, shortly before the share price plummeted from about $22 to around $10. Today it's selling over the counter for less than $1. The company was booted from the American Stock Exchange last month for blowing off reporting deadlines.
Getting shoved out of a company you named after yourself has gotta sting. But Mr. DHB's forced vacation hardly makes up for the troubles he's caused shareholders, taxpayers and soldiers as he capitalized on the "War on Terror."
The war has been very good to Brooks. In the early 1990s, he was running a small brokerage business with his brother until the SEC temporarily barred him in 1992 over insider trading violations. Seeking a new line of work, Brooks turned his attention to a small body armor company he'd purchased for $800,000 from a firm on the verge of bankruptcy. 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.
Jim Magee, a retired Marine colonel and former head of DHB's Point Blank subsidiary, recently told the Washington Post that by hiring only DHB, rather than spreading the work around to the 20 or so qualified companies, the military created a bottleneck that kept many troops in Iraq from having state-of-the-art body armor until nine months after the war began.
Eventually, the Pentagon broke DHB's monopoly to speed up production, but that wasn't the end of the military's problems with the company. Over the course of 2005, the Marines and Army recalled a total of 23,000 vests - all of them produced by DHB -- after an investigation by the Marine Corps Times revealed that the vests had failed ballistics tests for stopping 9 mm bullets. The exposÃ© showed that Pentagon officials had dismissed repeated warnings by inspectors. In one instance, army ballistics expert James MacKiewicz alerted higher-ups of "major quality assurance deficiencies" by DHB and recommended rejecting certain lots of vests and "disciplinary action against the contractor."
The military maintains that the recall was merely to calm fears stoked by the Marine Corps Times exposÃ© -- fears they claim are unfounded because subsequent tests on a sample of the vests found nothing wrong. And while there were rumors that the Pentagon Inspector General's office might conduct an investigation into the faulty vest affair, to date there is no sign that one is underway. 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.
Congress could do something to get to the bottom of the DHB vest affair. Back in World War II, when Harry S. Truman was still a Senator, he made his name by leading a special investigative committee to go after war profiteers. A comparison between one of their most significant investigations and the handling of the DHB case illustrates why we need a modern-day Truman Committee.
In 1943, Truman's team began getting tips that aerospace firm Curtiss-Wright was delivering defective motors to the Air Force. As in the DHB case, military officials denied the accusations. But Truman and his gang didn't stop there. They took testimony from company employees and military officials that revealed Curtiss-Wright had indeed sold leaky motors to the government and covered it up with forged inspection reports. The military had protected the company by removing inspectors who attempted to block the flawed parts from being installed in airplanes and endangering lives.
We could use a spunky investigator like Harry Truman today. According to a top expert on war-time contracts, Charlie Cray of the Center for Corporate Policy, the DHB case is just one of many that deserve lawmakers' attention. He pointed to the Pentagon inspector general's admission that the military has failed to account for $8.8 billion in Iraqi reconstruction funds as evidence that we haven't yet scratched the surface of the "war profiteering iceberg."
Keith Ashdown, of Taxpayers for Common Sense, agrees that more oversight is needed. "If contractors knew that they could be called before a committee of some stature, be publicly embarrassed and have their career destroyed, it could be a powerful deterrent."
The Truman Committee held 432 hearings with 1,798 witnesses and issued 51 reports. By contrast, today's lawmakers have held only a few hearings on Iraq war contracts. The DHB vest affair appears to have come up only once - when Mississippi Democrat Gene Taylor tried unsuccessfully to get Undersecretary of Defense Ryan Henry to comment on the matter.
There are bipartisan bills in both the Senate and the House to create a modern-day Truman Committee, but so far they have failed to muster support from more than a few Republicans. When the proposal last came up for a vote in the Senate, it went down on straight party lines.
The partisan divide over war profiteering is good news for all the David H. Brooks wannabes out there eager to make a profit off a War on Terror with no end in sight. While it is heartening to imagine that Brooks might have to exchange his pink rock star costume for an orange jumpsuit, this image shouldn't overshadow the bigger problems with contractor accountability. Case in point: while Brooks' personal fortunes may have soured, the company remains in good standing with Pentagon procurement officers. DHB raked in a total of $145 million in defense orders in 2005 and announced its most recent body armor contract for $12.2 million on May 5, 2006.
Sarah Anderson is a Fellow of the Institute for Policy Studies in Washington, DC, and the co-author of a forthcoming report on CEO pay in the defense and oil industries, "Executive Excess 2006," to be released on August 29.
- 20 Logistics
- 23 Private Security