Brooks' involvement in then-wife's company debated
The government and a defense witness have been sparring for the past several days at David Brooks' fraud trial over whether the body-armor magnate failed to report accurately his involvement with a Tennessee company owned by his then-wife.
Federal prosecutors at the trial in U.S. District Court in Central Islip have maintained that Tactical Armor Products, or TAP, the company owned by Terry Brooks, served a dual fraudulent purpose through a complex accounting scheme.
The scheme artificially inflated the value of the stock of Brooks' own company, DHB Industries, formerly based in Westbury, while at the same time secretly generating millions of dollars that Brooks illegally drained off for his separate harness-racing business and to buy jewelry, according to the government.
Federal prosecutor Christopher Ott has said that while Terry Brooks may have on paper "owned" TAP, David Brooks made all the company's decisions. TAP worked as a subcontractor on the production of body-armor vests for DHB.
Ott cited several Securities and Exchange Commission decisions and a number of accounting handbooks that apparently required Brooks to publicly disclose his alleged behind-the-scenes control of TAP.
But the defense witness, Manhattan CPA Gary Karlitz, steadfastly maintained during five days of testimony that accounting standards only required Brooks to disclose that DHB was doing business with a company owned by his wife.
Karlitz said that once the public was aware that Brooks' company and his wife's company were engaged in business, that was sufficient to warn the public that their dealings might not be an arms-length transaction.
Karlitz also said a government accountant who testified that the profit margin of TAP was unusually high - more than 50 percent - was incorrect. Karlitz said that by his calculations TAP's profit margin was about 36 percent, average for the type of industry the company was engaged in.
The back and forth between Ott and Karlitz at times involved such drawn out discussions of arcane accounting principles that U.S. District Judge Joanna Seybert requested that the jurors pay closer attention.
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