WRIST SLAPPERS By CHRISTOPHER BYRON
July 17, 2006 -- TWO years ago, an overpriced Westbury, L.I., outfit called DHB Industries began making news that we thought you could use.
This column predicted in May 2004 that DHB's shares - then trading for north of $10 on the rob-you-blind American Stock Exchange - were headed for a bumpy ride back to earth.
Two years later, even the Amex has given the bum's rush to the company, which makes body armor for the troops in Iraq. Last week, its stock was selling for $1.54 a share in Wall Street's land of the living dead - the so-called "OTC (Other)" market - with federal investigators beginning to poke through the handiwork of the DHB official whose track record on Wall Street was the biggest red flag of them all, the company's self-regarding founder and chairman, David H. Brooks.
Unfortunately, it appears that it is the intention of the Securities and Exchange Commission to stop you from using such information - or anything even remotely like it - for profit in the future.
Over the years, it has been a principle of this column that leopards don't change their spots - anyone who's had a run-in with the law in the past stands a pretty good chance of having one again.
We call these people recidivists, and there's no reason to believe that white-collar lawbreakers are any different in this regard from drug dealers or sex offenders. Studies by the U.S. Department of Justice show that two-thirds of inmates who are released from prison wind up being rearrested and charged with the same or similar type of offense again within three years of being set free.
Why should it make any difference that the Wall Street bunch possesses the money and legal resources in most cases to escape the clutches of the criminal justice system entirely? So what that the SEC typically lets them off civilly with the doubletalk of slap-on-the-wrist consent decrees in which the offenders get to avoid admitting they did anything wrong in the first place just so long as they promise never to do it again in the future?
If the white-collar chiselers and cheats of Wall Street broke the law once, chances are they'll break it again, and David H. Brooks is a perfect case in point.
IF his name rings the faintest of bells, it is perhaps because our boy enjoyed a brief but vainglorious streak through the gossip pages last winter when, like a small-beer version of ex-Tyco titan Dennis Kozlowski, he rented two floors of the Rainbow Room in Rockefeller Center for what he apparently intended to be the drop-dead bat mitzvah of all-time.
The affair, thrown for his daughter, Elizabeth, at a widely reported price of more than $10 million, featured performances by aging headliners like Tom Petty and Stevie Nicks, which suggests that the bash had been put together as much for the enjoyment of the 51-year-old Brooks as for that of his 13-year-old daughter.
Be that as it may, if we walk the cat backwards nearly 15 years to the start of the 1990s, we can find the estimable Master Brooks, at the tender age of 35, engaged in a type of activity he plainly hoped to keep secret, no matter how much attention came his way in the future - piggybacking behind the illegal insider trading activities of an employee at the Wall Street brokerage firm of Jeffrey Brooks Securities that he and his brother Jeff jointly controlled.
The SEC charged the Brooks brothers with intentionally and recklessly ignoring how the employee, one Andrew Cohen, seemed to be constantly - and inexplicably - hitting home runs by placing arbitrage bets on closely watched stocks like Time Inc., Squibb Corp. and Combustion Engineering just before the companies made news in takeover deals.
In reality, Cohen was doing exactly what the infamous Ivan Boesky had been caught doing barely five years earlier - trading illegally on tips regarding deals passed along to him from an analyst at one of the white-shoe firms involved in secret merger talks.
Though Boesky was sentenced to three years in prison for his confessed insider trading, no criminal charges were filed against either Cohen or his accomplices in the Brooks matter. For aiding and abetting the scheme, both David and Jeffrey got off with fines, a revocation of their brokerage industry licenses and their promise - in that classic form of SEC gibberish - never to break the law again, without ever admitting that they broke it in the first place.
But the Brooks boys already had a separate business going, DHB Capital Group. David was its chairman and held 60 percent of the shares. In 1995, David used it to acquire a bankrupt protective apparel company in Amityville, L.I., called Point Blank Body Armor, for $2 million, and three years later the company landed a six-year contract to supply body armor to the U.S. military. Then came the wars in Afghanistan and Iraq, and orders for protective body wear for the troops exploded.
Reports of defective workmanship and poor quality control had dogged Point Blank even before it went bankrupt, and they began surfacing all over again. By late 2003, Department of Justice investigators had begun to focus on a material called Zylon that was a key component in DHB vests.
SOON thereafter, David began aggressively selling his DHB hold ings, dumping roughly $186 million worth by August of last year, when the company finally acknowledged that Zylon was a defective material and its use was being discontinued.
This has led to a congressional probe of why the Pentagon made DHB a key supplier to the war effort in the first place; the Defense and Justice departments have opened their own probes as well.
Two weeks ago, the company was tossed off the American Stock Exchange for failing to file any financial reports since November, and last week, the company's obviously frightened board of directors agreed to fire David as part of a settlement with plaintiffs in two shareholder lawsuits against the company. So all in all it would seem pretty clear that the name David H. Brooks has been a pretty reliable red flag for Wall Street investors for at least the past 15 years.
Yet even as DHB's board of directors was acting last week to oust Brooks from the company, the five-member board of the SEC was meeting in Washington in its continuing drive to repeal the law of financial gravity so that not even the most overhyped, overpriced stocks in the market can be brought back to market before the insiders bail out and the outsiders lose their shirts.
The SEC's misguided war on so-called short-selling is grist for another column entirely. But the commission's action last week in curbing even market makers from engaging in so-called naked short-sales means that in the future, junk stocks like DHB Industries will rise even higher before common sense blows the whistle on the recidivist CEOs calling the shots.
cbyron@nypost.com
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