DOJ Letter With Exhibits

Case 2:06-cr-00550-JS-AKT Document 1661 Filed 05/20/13 Page 1 of 30 PageID #: 16436

By Hand and ECF .

The Honorable Joanna Seybert united States District Court Eastern District of New York Central Islip, New York 11722

u.s. Department of Justice

United States Attorney Eastern District of New York

610 Federal Plaza Central Islip, New York 11722-4454

May 20, 2013

Re: United States v. David Brooks, et al. Criminal Docket No. 06-550 (S-2) (JS)

Dear Judge Seybert:

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The government writes in response to defendant David Brooks's letter to the Probation Department, dated February 25, 2013 ("Brooks Letter"), detailing his obj ections to his Presentence Investigation Report ("PSR").

Introduction: As he has done throughout the instant criminal prosecution, Brooks repeats arguments in his objection letter that the Court has already denied. He also regurgitates arguments that he made in motions that are pending before the Court. The government will not respond to those arguments, and instead, relies on its opposition to those motions and the Court's prior decisions.

The government agrees that when there is a factual dispute, the Court must make its own finding. However, because the Court presided over the criminal trial, it is in a position to resolve those factual disputes based on the record already before it without the necessity of a Fatico hearing. See, e.g., United


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States v. Morrison, 04-CR-699 (E.D.N.Y. Jan. 29, 2010) (Hurley, J. ) .

PART A - The Offense

Charge{s) and Conviction{s)

1. Brooks does not object to the substance of paragraph 1 of the PSR, but instead selectively references the Court's August 24, 2012 Memorandum & Order, which correctly concluded that any jurisdictional defect in the First Superseding Indictment ("S-l") "was cured when the Second Grand Jury handed down the valid Second Superseding Indictment." 8/24/12 Order at 5.

2-4. Brooks improperly repeats the same meritless arguments contained in his motion to dismiss filed on October 26, 2012. Rather than respond again to these arguments, the government hereby incorporates by reference its memorandum of law in opposition to that motion filed on November 21, 2012 (Docket no. 1603).

2 (a), 2 (b) and 27. Brooks claims that PSR ~~ 2 (a), 2 (b) and 27 should be amended to reflect that the Court impermissibly permitted the jury to convict him of initially failing to disclose the relationship between DHB and TAP during the period 2000 to 2003 when such conduct was not charged in the indictment. Brooks Letter at 3. Brooks's objection is factually incorrect: the indictment does charge such conduct. Indeed, in response to Brooks's motion, the Court already explicitly made this finding on the record. Tr. 19259-19261.

During the trial, Brooks argued that the Second Superseding Indictment ("S-2") failed to charge both aspects of the TAP scheme and that the "original TAP non-disclosure" was not charged. Tr. 19244-19245. Brooks explicitly argued that permitting the jury to consider both time periods constituted a variance and constructive amendment. Tr. at 19260. The Court ruled that S-2 set forth the two schemes. Tr. at 19261. Ignoring the Court's unambiguous ruling, Brooks later reargued the same points extensively. Tr. 19451-19455. The Court again reached the same conclusion: both TAP schemes were set forth in S-2. Tr. at 19455. Now, Brooks makes the same failed argument


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again. It fails for the same reasons set forth by the Court mUltiple times before.

First, the Court expressly noted that "paragraph 49, the third sentence reads . 'such related party transactions had not been disclosed in any of DHB's SEC filings on forms 10-Q, 10-K or in DHB's proxy statement filings.' So it's in the indictment. It's clear." Tr. at 19454-19455.

Similarly, paragraphs 50 through 54 explicitly detail Brooks's attempts to frustrate the SEC investigation into TAP. S-2 expressly lists multiple misleading communications with the SEC after the partial related party disclosure. See S-2 ~~ 52, 54.

Moreover, when describing the schemes to impermissibly enrich Brooks, S-2 explicitly listed schemes to conceal "BROOKS'S use of DHB funds to pay bonuses to employees of TAP, a non-DHB corporation he controlled . [and] BROOKS'S de facto ownership of TAP and the unjust enrichment of BROOKS and TAP at the expense of DHB." S-2 ~ 31.

The Court no doubt recalls that the related party disclosure only mentioned TAP's ownership by Brooks's wife, not his personal control. Because it called for broader disclosure than merely the related parties, S-2 was never confined to merely concealing the wife's related party transactions. Indeed, "Brooks's de facto ownership of TAP" necessarily embraces both the related party relationship with the wife, which was partially revealed in 2003, and Brooks's actual control of TAP, which Brooks actively concealed from the SEC.

As to PSR ~ 27, Brooks also "exculpatory" facts should be added as TAP. Brooks Letter at 8. These facts, than to reiterate failed trial arguments, in the PSR.

argues that certain to any description of which do little other do not merit inclusion

2(f). Brooks contends that the "government did not include in its court-ordered bill of particulars the two incidents on which the Court permitted the government to rely to make out the uncharged R&D scheme." Brooks Letter at 3-4. He is wrong and the Court already rejected this argument. See Tr. 19426, 19523-24. Interestingly, Brooks only cites the government's initial


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bill of particulars. He does not cite to the government's supplemental bill of particulars, which included the two R&D incidents. See docket entry number 725. Brooks's failure to refer the Court to the government's supplemental bill of particulars is particularly puzzling in light of the fact that when Brooks raised this issue during the instant trial, the government cited its supplemental bill of particulars (see docket entry number 1203) and it was discussed in court (see Tr. 19402-04) .

4-6. Brooks argues that the jury was only permitted to consider three of the seven schemes--the two TAP schemes and the unauthorized and undisclosed executive compensation scheme--when determining whether Brooks was guilty of Counts Three, Four and Five. The government agrees. See Tr. 20749, 20758.

7-12 and 21. Brooks does not object to the substance of paragraphs 7-12, which correctly recite the charges set forth in Counts Six through Twelve of S-2. Instead, Brooks improperly digresses into a discussion of whether he believes the seizure and forfeiture ordered by the Court in this case were correct .

Brooks argues that the Second Circuit's recent decision in United States v. Contorinis, 692 F.3d 36 (2d Cir. 2012), applies to this case and that it directs imposition of a lower forfeiture judgment. Whether Contorinis applies or not is hardly clear, but it is clear that application of Contorinis would result in a dramatically increased forfeiture judgment.

How to define proceeds subject to forfeiture was hotly contested in this matter. Defendant Hatfield, in a motion for the release of restrained funds, argued that only net profits of her crimes were forfeitable under 18 U.S.C. 981(a) (2) (B). The government argued it should be permitted to forfeit gross proceeds pursuant to 18 U.S.C . 981(a) (2) (A). In a decision issued April 21, 2010, the Court concluded that the definition of proceeds found in 18 U. S. C. 981 (a) (2) (A) applied to this case. United States v. Hatfield, 2010 WL 1685826, at *3 (E.D.N.Y. April 21, 2010). That definition provides for the forfeiture of gross proceeds and does not limit forfeiture to the net gain or profit realized from the offense. The Court then held that, insofar as relevant here, the gross proceeds of the defendants' crimes equaled the "difference between the stock's inflated value, and what it would have sold for absent the fraud." Id. In its motion for reconsideration, the


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government argued that the definition, as applied by the Court, would result in a lower forfeiture than would the forfeiture of net profits because the defendants had paid little to nothing for the shares of stock they sold at artificially inflated prices. Letter dated July 16, 2010, Docket No. 1195, at p. 4 . The Court denied the government's motion for reconsideration and, after two forfeiture hearings and extended briefing, found that $61,444,967 of the assets seized pre-trial were subject to forfeiture as representing the proceeds of Brooks's insider trading, namely the difference between the stock's "true value" and inflated value.

Since the Court issued the Preliminary Order of Forfeiture incorporating this analysis, the Second Circuit issued its decision in Contorinis. There, the Court of Appeals held that, in an insider trading case, 18 U.S.C. 981(a) (2) (B) 's net profit definition applies, and forfeitable proceeds constitute "the amount of money acquired through the illegal transactions resul ting in the forfeiture, less the direct costs incurred in providing the goods or services." Contorinis, 692 F. 3d at 145. See also id. at 145 n.3 ("it seems that the only money that should be subject to forfeiture in an insider trading case is money acquired when shares are traded based upon inside information at a gain")

This decision does not lead to the result Brooks advocates. First, it is not clear that Contorinis governs this case because Brooks stands convicted of both fraud and insider trading. Mail, wire and securities frauds arising from a scheme to doctor accounting figures are inherently unlawful activities and therefore trigger the forfeiture of gross proceeds, not net profits. See Contorinis, 692 F.3d at 145, n.3; Hatfield, 2010 WL 1685826 at *3. Second, the application of 18 U.S.C. 981(a) (2) (B)'s net profit definition places the burden of proof regarding direct costs on the defendant. Finally, and perhaps most importantly, the definition of net profit adopted by Contorinis would require Brooks to forfeit nearly all, if not all, of the $186 million generated by his insider sales because he paid little to nothing to acquire the shares that he sold. 1

1 Brooks has not offered any credible evidence to demonstrate his costs, as he must if 18 U.S.C. 981(a) (2) (B) applies, but even a cursory review of the records in evidence demonstrate that, whatever he paid for the shares sold in the 2004 insider trading transactions, it was far less than the "trtie value" ascribed to


those shares by the Court and used to calculate his forfeiture liability.

First, 700,000 of the shares sold in the November 2004 insider trading transaction were acquired through the cashless exercise of options. GX 5069 at p. 5. Therefore, any proceeds traceable to the sale of those shares constitute net profit and are subject to forfeiture in their entirety under Contorinis.

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Second, the 3,000,000 shares that Brooks sold out of his children's custodial accounts had been held in those custodial accounts since at least between 1996 and 1998. The remaining shares sold in the unlawful insider trading transactions were held by a corporation owned by Brooks through his company, David Brooks International. GX 5072 at p. 5; see also Affidavit of Robert M. Cappadona, dated October 25, 2007 (3500-RC-37). Aside from Brooks's bald assertion that his costs totaled $78 million, the record is not at all clear as to when those shares were acquired, at what price they were acquired, or when they were transferred to the children's account or to David Brooks International. However, the record is clear that Brooks held exercisable warrants to purchase millions of shares of DHB stock at advantageous prices. See, e.g., GX 5022; Tr. 4690 (noting that at end of 2001, Brooks held 9,575,000 shares acquirable under currently exercisable warrants: 3,750,000 shares at $2.33 per share, 25,000 shares at $3.25 per share, 25,000 shares at $2.00 per share, 25,000 shares at $7.11 per share and 1,500,000 shares at $1.00 per share). It is reasonable to assume that Brooks purchased the insider trading shares through the exercise of those warrants.

Indeed, Brooks's claim that he paid $78 million for the shares is fantastical. As set forth above, 700,000 of the shares sold in the November and December 2004 insider trades were acquired via the cashless exercise of warrants, and the record is unclear as to how the remaining 8,798,025 shares were acquired. If Brooks really incurred $78 million to acquire those shares, then he paid an average price of $8.87 per share ($78 million/8,798,025). Given that he possessed millions of warrants to purchase shares at prices considerably less than that, this unsworn, unsupported claim regarding costs is simply incredible.


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Brooks suggests that the Supreme Court's decision in Southern Union Co. v. United States, U.S. 132 S.Ct. 2344 (2012) , . mandates application of a reasonable doubt standard for criminal forfeiture proceedings. Brooks ignores the long and well-established line of cases requiring that the government prove its forfeiture allegations using a preponderance standard.

In Southern Union, the Supreme Court examined the imposition of criminal fines in light of Apprendi v. New Jersey, 530 U.S. 466 (2000), which held that "any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt. /I Southern Union, 132 S. Ct. at 2350 (quoting Apprendi, 530 U.S. at 490). However, as the Second Circuit has repeatedly noted, Apprendi does not apply to forfeiture because forfeiture is an indeterminate scheme without a statutory maximum. United States v. Pfaff, 619 F.3d 172, 175 (2d Cir. 2010)i United States v. Fruchter, 411 F.3d 377, 382-83 (2d Cir. 2005). Accordingly, Southern Union, which interprets Apprendi, does not apply to forfeiture, and Brooks's argument that the Court incorrectly applied the preponderance standard is without merit. See United States v. Phillips, 704 F.3d 754, 770-71 (9th Cir. 2012) (Southern Union does not apply to forfeiture because forfeiture has no statutory maximum and because the decision does not suggest that the Court intended to overrule Libretti v. United States, 516 U.S. 29, 49 (1995)) i United States v. Day, 700 F.3d 713, 732-33 (4th Cir. 2012) (same).

Brooks's argument that the Court cannot impose a money judgment representing the difference between the proceeds of the unauthorized compensation scheme and the assets seized traceable to that scheme is mistaken. Here, the Court found Brooks obtained over $6 million of proceeds arising from the unauthorized compensation scheme. By awarding the government a money judgment for the difference between the amount seized and the proceeds generated, the Court properly held Brooks accountable for his crimes.

Regardless, even applying Contorinis and accepting Brooks's claim that he spent $78 million to acquire the shares sold in the insider trading transactions results in a significantly increased forfeiture judgment of $107,723,662 ($185,723,662 (gross)--$78,OOO,OOO (cost)). The government has no objection to the Court revising the Preliminary Order accordingly.


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However, citing united States v. Awad, 598 F.3d 76, 78 (2d Cir. 2010), Brooks suggests that, because he has ample monies to satisfy the forfeiture order, the Court cannot award a money judgment. 2 Contrary to Brooks' s argument that Awad authorized the imposition of money judgments only when a defendant lacks assets sufficient to satisfy the forfeiture order, Awad held "that the propriety of a [forfeiture money judgment] does not depend on a defendant' s assets at the time of sentencing." Id. (emphasis added). This "interpretation of the criminal forfeiture provision ensures that all eligible criminal defendants receive the mandatory forfeiture sanction Congress intended and ensures that there is a mechanism by which the government may disgorge their ill-gotten gains, even those already spent." Id. at 79 (citations and internal quotation marks omitted) .

Regardless, Brooks's argument elevates form over substance: once third party claims to property have been resolved, the government intends to move to amend the forfeiture order to include substitute assets (once they are identified) in satisfaction of the outstanding money judgment. See Fed. R. Crim. P. 32.2 (e) (1) (B); 21 U.S.C. 853 (p) . See also United States v. Vampire Nation, 451 F.3d 189, 202 (3d Cir. 2006) (applying 853(p) to money judgment, noting that to do otherwise "would permit defendants who unlawfully obtain proceeds to dissipate those proceeds and avoid liability for their ill-gotten gains"); United States v. Casey, 444 F.3d 1071, 1077 (9th Cir. 2006) (" [t] he criminal forfeiture statute mandates imposition of a money judgment on substitute property"); Hall, 434 F.3d at 60 (interpreting forfeiture order awarding money judgment to permit the Government to move for substitute property). Accordingly, the Court should reject Brooks's attempt to escape a money judgment.

Brooks complains that the government has improperly seized assets. However, without more context, the government cannot respond to Brooks's claim regarding shares of stock held by Like

2 Brooks does not specify to what monies he is referring when he states that he has sufficient assets to satisfy the forfeiture judgment. The assets restrained in this case are also subject to restraint in the parallel civil forfeiture and may not be available to him to satisfy other judgments. Brooks has not submitted a financial statement to Probation.


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a Prayer Trust. And Brooks's argument that assets purportedly belonging to his children cannot be seized is simply incorrect because: (1) a jury found, beyond a reasonable doubt, that Brooks committed insider trading with shares of stock held in his children's custodial account; and (2) criminal forfeiture "reaches any property that is involved in the offense," including property not owned by the defendant. De Almeida v. United States, 459 F.3d 377, 381 (2d Cir. 2006). The Brooks children have filed claims in the ancillary proceeding, and their claims to the assets will be resolved there. Id. (" [t] he likelihood that some property involved in an offense will be owned by persons other than the criminal defendant is reflected in the provision for an ancillary proceeding"). See also United States v. Dupree, _ F. Supp. 2d 2013 WL 311403 (E.D.N.Y. Jan. 28, 2013), *4 (discussing ancillary proceedings); In re Dreier LLP, 452 B.R. 391, 410-11 (S.D.N.Y. 2011) (same). Brooks therefore lacks standing to assert any claims on his children's behalf. See, e.g., united States v. Gallion, No. 2:07-39-DCR, 2009 WL 2242413, at *3 (E.D. Ky. July 24, 2009); United States v. Tremblay, 2008 WL 4571548, at *2 (S.D.N.Y. 2008); United States v. Armstrong, No. 05-130, 2007 WL 809508, at *4 (E.D. La. Mar. 14, 2007); United States v. Brown, 02CR159, 2006 WL 898043, at *5 (E.D.N.Y. Apr. 4, 2006).

15. Brooks obj ects to paragraph 15 arguing that Count 17 should be dismissed for lack of venue. Brooks Letter at 4-5. As the Court previously ruled, the jury need only find by a preponderance of the evidence that venue is established. Tr. 19185-19186. After the jury was charged on that issue, Brooks made an oral motion to dismiss Count 17 on the basis of venue. Tr . 20804. The Court reserved decision on the motion. For the clarity of the record, the Court should now expressly deny the motion to dismiss.

By way of background, Count 17 relates to Brooks's lies to DHB's independent public auditors: Rachlin Cohen & Holtz ("Rachlin"). On March 7, 2006, Rachlin auditors confronted Dawn Schlegel about a "plug" of non-existent vests. Tr. 9061- 9062. Schlegel then testified that she called David Brooks on his mobile phone about this questioning and was instructed by Brooks to show the auditors certain misleading, non-representative black vests. Tr. 9062. The existence of these phone calls was established by introduction of Brooks's mobile phone records, which showed eleven phone calls between Schlegel and Brooks on March 7, 2006. GX 17012 (Brooks's mobile phone was billed to


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DHB's offices in the Eastern District of New York and bore an Eastern District of New York area code). On March 9, 2006, Rachlin emailed Brooks, among other DHB employees in the Eastern District of New York, a memorandum indicating Rachlin's intent to begin a 10-A examination into fraud in DHB's books and records. Tr. 11053. On March 10, 2006, Brooks participated in a meeting with Rachlin officials in Florida. Tr. at 11057.

Although Brooks provides no citations for his motion to dismiss, it is helpful to work through the governing legal principles. Judge Joseph Bianco wrote extensively on the subject of venue in United States v. Abdallah, 840 F.Supp.2d 584 (E.D.N.Y. 2012). In that case, Judge Bianco explained how "[u]nder 18 U.S.C. 3237(a), venue properly lies in 'any district in which such offense was begun, continued, or completed. '" Abdallah, 840 F. Supp. 2d at 603. Evidence of a phone call giving instructions to another member of a scheme is sufficient to survive a Rule 29 motion to dismiss. Id. at 603-606 (holding that evidence of one phone call sufficient to support venue for a securities fraud charge). Brooks's phone conversation with Schlegel included the instruction to give a false explanation of the missing vests.

Brooks, however, argues that there was no evidence that tied this specific crime to the Eastern District of New York. As stated in Abdallah, "[a] defendant challenging a conviction on the basis of insufficient evidence bears a heavy burden. II Id. at 608 (citing United States v. Thomas, 377 F.3d 232, 237 (2d Cir. 2004) (citation omitted)). Moreover, it is axiomatic that the court must view the evidence in the light most favorable to the government and draw all permissible inferences in the government's favor. See United States v. Irving, 452 F.3d 110, 117 (2d Cir. 2006). "In examining the sufficiency of the evidence, the Court also should not analyze pieces of evidence in isolation, but rather must consider the evidence in its totality." Abdallah, 840 F.Supp.2d at 507 (citing United States v. Rosenthal, 9 F.3d 1016, 1024 (2d Cir. ' 1993). Finally, "[d] irect evidence is not required; '[i] n fact, the government is entitled to prove its case solely through circumstantial evidence, provided, of course, that the government still demonstrates each element of the charged offense beyond a reasonable doubt. '" United States v. Lorenzo, 534 F.3d 153, 159 (2d Cir. 2008) (quoting United States v. Rodriguez, 392 F.3d 539, 544 (2d Cir. 2004)).


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Against that legal backdrop, the government points the Court to the following facts . The facts clearly establish that Brooks and Schlegel talked multiple times over his mobile phone on March 7, 2006. See, e.g., GX 17012. Brooks's own examination of Dawn Schlegel established that Brooks flew to Florida from New York on March 9, 2006 . . Tr. 9099-9100, 9124-9125 . DHB's corporate offices and Brooks's home office were located in the Eastern District. On March 9, 2006, Rachlin sent an email to Brooks and other DHB employees. Tr. 11053, 11057. The records of the private plane, which record Brooks's out-of -state travel, provide no evidence of Brooks leaving the Eastern District of New York between March 6 and March 9. The credit card records also provide no evidence of Brooks being anyplace but New York until the evening of March 9, 2006. Indeed, Brooks points to no evidence at all that Brooks was anyplace other than the DHB offices or his home office in the Eastern District of New York until the evening of March 9, 2006. See Brooks Letter at 4-5.

The complete evidentiary picture in this case further supports a finding that Brooks was at work in the DHB offices or his home office in the Eastern District of New York when he made the relevant March calls. General Lawrence Ellis testified that Brooks was always at his desk. See Tr. 641-642. Brooks's own attorneys took pains to examine witnesses about how he was always in his home office when he was not at the DHB offices. See Tr. 367 (Bart Stasi, a landscaper, testifying about Brooks constantly working at his desk in his home office); Tr. 4127, 13769 (Irving Villalon testifying about how Brooks was always working); Tr. 7111, 7493 (Mary Kriedell testifying about how Brooks was working constantly out of his home). David Brooks's attorneys cross-examined a witness about how, even though David Brooks was in New York and the witness was in Florida, he was always reachable by phone. See Tr. 3032, 3037-3038 (Travis Brooks). In short, Brooks's own evidence emphasized that he was always at work in the Eastern District of New York. Therefore, Brooks's own evidence combined with Schlegel's testimony and phone records establishes his presence in New York on March 7, 2006.

This circumstantial evidence is corroborated by the corporate credit card and travel records, which only show activities in the Eastern District of New York between March 6 and March 9, 2006. As the Court is well-aware, when Brooks


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traveled, even on vacation, he took his private jet and used the corporate credit cards. This evidence shows no travel.

Moreover, DHB's corporate headquarters was located on Long Island, which independently establishes venue. See, e.g., United States v. Tucker, 495 F. Supp 607, 618 (E.D.N.Y. 1980) (Platt, J.) ("this district was a proper venue for a grand jury investigation into the dealings between defendant and Verner, inasmuch as Verner lived in this district and Sam Goody, Inc., the alleged ultimate recipient of defendant's counterfeit products, is headquartered in this district."). DHB maintained its books and records on Long Island and consolidated all of DHB's subsidiaries' financial statements into one financial statement. Those financial statements contained the fraudulent 62,000 non-existent vests. All of that information was kept in the Long Island headquarters. Those records were integral to the frauds and the sole reason for Brooks's lies to the audi tors. Therefore, as to this lying to auditors count, the facts "not only involve some activity in the situs district but also satisfy the 'substantial contacts'" test. United States v. Royer; 549 F.3d 886, 895 (2d Cir. 2008).

Instead of referencing the evidence, Brooks points to the inherent "mobility" of Brooks's phone to cast doubt on venue. This argument cannot be reconciled with the controlling law, which requires the Court to view the evidence in the light most favorable to the government and draw all permissible inferences in the government's favor. All of those inferences, which are unchallenged in the evidentiary record, indicate that venue was proper in the Eastern District of New York. The venue motion and this PSR objection should both be denied.

20. As discussed above, the government agrees that only the TAP schemes and unauthorized and undisclosed executive compensation schemes apply to Count Three, and Count Three involves company loss only. Count Seventeen involves investor losses that are the result of Brooks's making materially false and misleading statements to independent public accountants in violation of 15 U.S.C. 78ff, which is an offense whose total offense level is calculated in part by determining loss under Uni ted States Sentencing Guidelines ("U. S. S. G. ,,) 2B1. 1. See U.S.S.G. 2Bl.l Commentary, Statutory Provisions. As discussed below, both the company and investors were victims who suffered losses as a result of Brooks's materially false and misleading statements to independent auditors Rachlin Cohen & Holtz.


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22. Again, Brooks improperly uses the PSR as a vehicle to reargue the Court's forfeiture decision in this case. He does not deny that his interest in the assets listed in paragraph 22 were forfeited by the Court. He also improperly attempts to reargue a statute of limitations issue previously raised in his motion to dismiss filed on October 26, 2012. As the government discussed in its response to that motion, the return of S-l on October 24, 2007, tolled the statute of limitations under 18 U.S.C. 3288, irrespective of the premature expiration of the first grand jury. See Govt. Opp. Br. at 24 (docket no. 1603). S-2, which was returned on July 9, 2009, was not barred by the statute of limitation because it was retuned during the time period in which the statute was still tolled. See United States v. Maklin, 535 F.2d 191 193 (2d Cir. 1976); United States v. Lauter, 92-258, 1994 WL. 116576 at *2 (E.D.N.Y. Mar. 16, 1994) (Sifton, J.). Therefore, the government is entitled to forfeiture and restitution with respect to all offenses of conviction because they occurred within or straddle the five years before the return of S-l.

In any event, the Court has already rejected a nearly identical argument as applied to Brooks's liability to forfeit the proceeds of his conspiracy. United States v. Hatfield, 795 F. Supp. 2d 219, 227 (E.D.N.Y. 2011). United States v. Hatfield, 2010 WL 4177159, *6 (E.D.N.Y. Oct. 18, 2010) (forfeiture may be based on uncharged conduct and even on conduct on which the court granted a Rule 29 motion during the trial) . The "scheme argument" raised in Brooks's objections is merely an attempt to rehash this already decided point.

Because Brooks was convicted of a conspiracy and of schemes to defraud, he must forfeit the proceeds of that conspiracy and those schemes, no matter when those proceeds were acquired. See United States v. Venturella, 585 F. 3d 1013, 1015, 1016 -17 (7th Cir. 2009) (forfeiture in a mail fraud case "is not limited to the amount of the particular mailing but extends to the entire scheme"); United States v. Capoccia, 503 F.3d 103, 117 (2d Cir. 2007) (noting in dicta that defendants convicted of a scheme to defraud are liable to forfeit proceeds of the entire scheme, no matter when acquired); United States v. Jennings, 487 F.3d 564, 584 (8th Cir. 2007) (affirming without discussion forfeiture of the proceeds of the entire mail fraud scheme based on a conviction on just two substantive counts); United States v.


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Kahale, 2010 WL 3851987, *31 (E.D.N.Y. Sept. 27, 2010) (applying Capoccia and concluding that the "properly forfeitable property in this case need not be limited to those funds obtained from the three investors specifically identified in the Indictment .

, but rather should encompass all funds obtained as part of the overall scheme to defraud"); United States v. Boesen, 473 F. Supp. 2d 932, 952 (S.D. Iowa 2007) (defendant convicted of 82 substantive counts of health care fraud must forfeit the proceeds of the entire scheme, not just the proceeds involved in the 82 counts on which he was convicted). See also The United States' Memorandum of Law in Support of Its Motion for Entry of a Preliminary Order of Forfeiture, Docket No. 1422, at 52-54. Brooks's argument regarding his scheme liability therefore must be rejected.

23 and 51-62. This objection consists of two parts. First, Brooks argues that the PSR should be amended to include mention of the loans that he made to DHB. Second, Brooks argues that the PSR should be amended to include a discussion of the 1997 Resolution as a valid corporate document.

Proceeding in order, the 10K public disclosure fiscal year stated that all of Brooks's personal were paid in full. See GX 5018; Tr. 5471. testimony or exhibits were ever admitted. therefore, add nothing to the PSR's narrative and should be denied.

for the 2000 loans to DHB

No contrary These loans, the obj ection

Second, Brooks has long argued that a valid 1997 resolution absolves him of all looting sins. He explicitly (and repeatedly) argued this point to the jury. See, e.g., Tr. 19910 ("I will tell you this: By the time I finish speaking to you, I promise you one thing every dollar that the government alleges Mr. Brooks stole through compensation, looting, was authorized by the 1997 resolution, and, therefore, covered by the offsets that you heard talked about in this courtroom."). "The immense trial evidence" plainly established that Brooks was not entitled to charge personal expenses to DHB. Hatfield, 795 F. Supp. 2d at 241. Indeed, the Court explicitly found that Brooks must forfeit "the assets that Mr. Brooks obtained through the unauthorized compensation scheme." April 23, 2012 Mem. & Order at 20 (docket no. 1536). Consistent with the Court's findings, which came after months of trial and further months of forfeiture hearings, Brooks's objection should be denied. See United States v . Hatfield, 724 F. Supp. 2d 321, 328 (E.D.N.Y.


2010) (" [A] reasonable jury could find that Mr. millions of dollars of shareholders' money on expenses, without proper authorization to do so. 63 07, GX 1510 - B . ") .

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Brooks spent his personal

See, e.g., Tr.

While the Court has already found that the "immense trial evidence" established that Brooks was not permitted to charge personal expenses to the company, the government provides a non-exhaustive list of some of that evidence:

Unlike valid DHB unanimous resolutions that contained signature lines for all the board members, the 1997 Resolution, which purports to be a unanimous resolution of the board, only had one signature line. Compare GX 18001 (legitimate DHB unanimous resolution, dated January 23, 1997 - -three months before the 1997 Resolution purportedly went into effect) with GX 18002 (fake 1997 Resolution) .

None of the more than 70 witnesses who testified at trial saw the 1997 Resolution before the initiation of the SEC's investigation into Brooks's unauthorized compensation. Indeed, Schlegel never saw it (Tr. 6261-65, 6360); Kreidell, who was the Chief Financial Officer at the time that the 1997 Resolution was supposedly created, never saw it (Tr. 1042, 1048, 1241); Brooks's own witness Paul Donofrio, an Executive Vice President who worked closely with Brooks and signed an affidavit the subj ect of which was Brooks's compensation, never saw it (Tr. 14754-58)

No one saw an original of the 1997 Resolution. The 1997 Resolution is replete with typos. It was not disclosed in any of DHB's public filings until

the SEC's investigation was initiated. Brooks did not include income from the 1997 Resolution on

his tax returns. If Brooks was entitled to charge personal expenses to DHB,

he would not have had to ask Jay Chin to create fake invoices falsely claiming that expensive pens that he bought for his personal collection were actually office supplies. But that's exactly what he did. See Tr. 1553-57; Compare GX 1233Z (real invoice) with GX 1233B (fake invoice) .

If Brooks was entitled to charge personal expenses to DHB, he would not have had to worry about personal expenses passing as business expenses, but he was. See GX 5201 at


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5 ("a lot of personal charges, not high dollar value, some will pass [as business expenses] some won't.").

If Brooks was entitled to charge personal expenses, he would not have had to buy back personal assets to get them off the books before Grant Thornton started auditing DHB in 2002, but he did. See GX 5173.

If Brooks was entitled to charge personal expenses, there would have been no reason for him to improperly classify personal expenses as business expenses in the Audit Committee Report, but that is exactly what he did. See GX 1285-C (falsely classifying invitations for Brooks's son's Bar Mitzvah, plastic surgery for Brooks's wife, a plasma television installed in Brooks's son's bedroom, a burial plot for Brooks's mother and vitamins for Brooks's horses as business expenses rather than personal expenses). From 1997 to 2003, when the 1997 Resolution was supposedly in effect, he also misclassified personal expense on DHB' s books and records. See Tr. 5528-29, 6269, GX 1495-A (falsely classifying photography for Brooks's children's parties as advertising, payments to a nurse for Brooks's mother as repairs and maintenance and horse vitamins as supplies) .

Brooks was also concerned that the auditors would find certain personal expenses that he had charged to DHB. See GX 5207 ("LIPA won't find will assume DHB" i "doctor payment [referring to the plastic surgery for Brooks's wife] won't find assume insurance medical.").

Further, Brooks lied about the true purpose of a check from DHB's bank account that he wrote to Fred Marcus Photography. Brooks wrote that the check was for "catalogs," which was a lie. See GX 9052. Indeed, Andrew Marcus testified that the payment was for photographs taken at Brooks's son's Bar Mitzvah. Tr. 931. He further testified that Fred Marcus Photography did not sell catalogs to DHB or Point Blank. Tr. 932. In fact, they never sold catalogs to anyone. Tr. 932.

Brooks continued to charge personal expenses to DHB, even after he relinquished all rights he had to the purported 1997 Resolution.

Brooks scalped tickets to sporting events and concerts, for which the company paid, and pocketed the cash. Tr. 13209-13, 13215-30, 13242-44, 13246-58, 13264-75, 13280-87 i GX . 1382-89, 1382A-89A, 1392-94, 1392A-94A, 1396,


17

1396A, 1398, 13.98A, 1401, 1401A, 1403-04, 1403A-04A, 1406-11, 1406A-11A, 1415-18, 1415A-18A, 1422-28, 1422A-28A, 1390 - 91 , 1395 , 1405 , 1430 - 31 , 1435 , 1438 , 1534 and 1542 -45.

In 1997, DHB did not have a compensation committee.

In the face of that overwhelming evidence, Brooks quotes from Gary Nadelman's testimony before the SEC in support of his argument that the 1997 Resolution is valid . Brooks Letter at 7. Interestingly, Brooks fails to mention that Nadelman subsequently met with the government and admitted "he never signed the '1997 Resolution' and he knows that because he never saw the document prior to 2005. He never faxed the document in 1997, because he never saw it before." Nadelman proffer of April 28, 2009, FD-302 at 3, a copy of which was previously provided to both the Court and defense counsel. Nadelman further stated that he believed that the 1997 Resolution was a fraudulent document because no other board member signed it and it was supposedly a unanimous resolution. Id. at 3. Additionally, while Brooks had no burden of proof at trial, he called numerous witnesses and because the government gave Nadelman immunity, Brooks could have called Nadelman as a witness if he believed that Nadelman's testimony was going to be consistent with his SEC testimony. Tellingly, Brooks elected not to calJ Nadelman during his robust defense case.

Brooks also reveals new, non-factual arguments about Internal Revenue Service Regulations on facelifts and bonuses. See Brooks Letter at 12-13. These arguments are irrelevant.

Brooks further contends that the PSR distorts the record regarding his ownership of the Bentley. Brooks Letter at 12. His argument is misguided. The evidence plainly established that Brooks bought the Bentley for his own personal use. The records concerning the sale of the Bentley--GX 1130A--state that Brooks was the owner of the vehicle. See GX 1130Ai Tr. 12300-05, 12317-25 . In addition, the car was registered in his name. Id. Moreover, the records from the car dealership say that Brooks intended to use the Bentley "for the purpose of pleasure." Tr. 12318. Although Ms . Jefferson testified that the words \\ for the purpose of pleasure" would not have been written by Brooks, but instead by an employee of the car dealership, Brooks still signed those records. Tr. 12318, 12340-41. Further, the Bentley was still in Brooks's possession on October 25, 2007 more than a year after Brooks left DHB. Tr.


18

12371-75. In addition, General Ellis testified that the Bentley was Brooks's car. Tr. 18681-82. He also testified that because the Bentley was Brooks's car, he did not expect DHB to pay insurance for that car. Tr. 18682. Accordingly, Brooks's argument that the PSR distorted the record is belied by the actual record.

Brooks further argues that the bull that Arthur DiModica made for him--GX 16--was a legitimate business expense rather than an example of his looting. Brooks Letter at 12. The Court already rejected this argument and concluded that Brooks had to forfeit the bull. See Hatfield, 795 F. Supp. 2d at 242 ("The Court finds that the immense trial evidence concerning [the unauthorized and undisclosed executive compensation] scheme

more than suffice[s] to meet the Government's forfeiture evidentiary burden"); April 23, 2012 Mem. & Order at 20. Putting that aside, Brooks's argument is contradicted by the record. Indeed, like with the Bentley, the FBI recovered the bull in Brooks's possession on January 21, 2010, more than four years after Brooks left DHB. Tr. 13917. Brooks did not display the bull in his home office, which was on the second floor of his home; instead, it remained in the same place that Mr. DiModica left it, namely, on the first floor of Brooks's home in the foyer area. Tr. 1411, 13917. The Court should not entertain Brooks's meritless contention.

Brooks takes issue with the PSR's statement that he took "numerous vacations" at company expense. Brooks Letter at 12-13. The evidence adduced at trial, including logs for Brooks's private jet, credit card statements and other documents, as well as the testimony of Schlegel, Villallon, Paul Donofrio, Joseph Giaquinto, Elaine Pesky and General Ellis, makes plain that DHB paid expenses relating to Brooks's personal trips. Indeed, DHB paid. for every single flight that Brooks or his family members took on his private jet, despite that many of those flights were personal in nature. For example, DHB paid to fly Brooks's daughter and her friends to Madison, Wisconsin so that they could attend a Halloween party. Tr. 3734, 3827; GX 1333. DHB also paid for expenses associated with Brooks's family vacation to St. Barts. Brooks's travel agent, Elaine Pesky (Tr. 1805, 1810, 1812-15), Villallon (Tr. 3726, 3732, 3874-75), and Schlegel (Tr. 6422, 6434-35) testified regarding the personal nature of those trips. Brooks's own witness, Paul Donofrio, also confirmed that Brooks's trip to St. Barts was a "family


19

vacation." Tr. 14728-29 ("I know he was on vacation with his family in the Caribbean, yes."). Further, Donofrio testified about a personal trip that he took with Brooks. Specifically, Mr. Donofrio testified that he flew on Brooks's private jet to attend a horse auction. Tr. 14710-12, 14727-28. However, Brooks's flight logs, which were included in the Audit Committee Report that was submitted in connection with the SEC Investigation, falsely stated that the purpose of that trip was to attend an investor meeting. See GX 1333, 5137; Tr. 14710-12, 14727-28. Another flight that DHB paid for was Brooks's family vacation to' St. Tropez. Brooks mentions that Schlegel testified that this was a vacation (Brooks Letter at 12), but fails to mention that Villallon (Tr. 3733, 3879-80, 4374), Pesky (Tr. 1810, 1817 - 18) and General Ellis (Tr. 18584, 18668-69) also testified that this trip was a personal one. Accordingly, the Court should reject Brooks's argument.

The Offense Conduct

24. Brooks argues that all of the financial entities that he established were entirely innocent. Brooks Letter at 8. This argument is perplexing. The Court has already found that Brooks violated the terms of his bail through the concealment of money in a series of domestic and international financial entities. That finding has been affirmed by the Second Circuit in an interlocutory appeal. The objection should be denied. As set forth in the civil forfeiture action that parallels this case, the more recently formed entities that Brooks claims were for so-called "legitimate estate planning purposes" were actually charitable remainder annuity trusts ("CRATS"), which Brooks created and of which he was trustee in order to take large charitable deductions when, in fact, no money ever went to charity or was intended for charity. See United States v. All Assets, Complaint ~ 64, 10-CV-4750 (JS) (docket no. 1-2). Five CRATs, each created in late December 2004, were used to avoid the payment of taxes: Magic Moments Trust, Pathfinder Trust, Saving Lives Trust, Showtime Trust, and Like a Prayer Trust. Id. Donations were made to the CRATs by several corporate enti ties controlled by David Brooks and of which he was the president. Id. ~ 65. Brooks's family members were the nominal shareholders of these companies. Id. The companies' donations consisted solely of $142 million of insider trading proceeds. Id. ~~ 62, 65. Specifically, Brooks donated either: (a) DHB stock acquired through his 2004 exercise of warrants; or (b) the


20

proceeds of the sale of DHB stock acquired through his 2004 exercise of warrants. Id. By donating the stock or the proceeds of its sale to the CRATs and by claiming chari table deductions stemming from those donations, Brooks and his family avoided the payment of significant taxes. Id. ~ 69. However, as set forth below, Brooks never honored the trusts. Id. Wi thin months, the CRAT accounts were emptied and the monies used for Brooks's personal benefit. Id.

30-31 and 63. Brooks does not object to paragraph 30 which sets forth a recitation of the methods and means by which Brooks and his co-conspirators defrauded the investing public, the SEC and the company. Rather, he quarrels with the Probation Department's characterization of one of the objects of Brooks's fraud- -to inflate the value of DHB stock. PSR ~ 31. Brooks contends that "the only scheme alleged in PSR ~ 30 which the jury could have relied on to convict Brooks of insider trading is the so-called 'R&D' scheme " Brooks Letter at 9. Brooks is wrong. In addition to having knowledge of the R&D scheme at the time he sold his shares, Brooks also knew about material non-public information regarding: (a) his control of TAP to earn exorbitant profits at DHB's expensei (b) his looting of DHB assets for the benefit of himself and his familYi and (c) the November 26, 2004 mailing and electronic filing of DHB's

. Proxy Statement that contained numerous materially false and misleading statements and omitted material facts about Brooks's unauthorized compensation and his intentional failure to disclose TAP over the preceding years. See Hatfield, 724 F. Supp.2d at 328 ("Additionally, it should be noted that- -at this stage--even Mr. Brooks's 'looting' defense would support an insider trading conviction. Specifically, although Mr. Brooks argues that the 1997 Resolution entitled him to spend DHB money on his personal expenses, Mr. Brooks does not dispute that DHB never disclosed the full extent of his compensation to shareholders. Nor could he. [T]he 10-K does not disclose that Mr. Brooks charged $666,657 in personal expenses to a corporate credit card in 2002. [a] nd a reasonable jury could find that DHB1s failure to accurately report Mr. Brooks's executive compensation was material.) i see also United States v. Hatfield, 06-550 (JS), 2010 WL 2838525, at *2 (Jul. 19, 2010 E.D.N.Y.) ("Mr. Brooks is acquitted of the insider trading charges to the extent that those charges are predicated on DHB's allegedly overvalued inventory. The insider trading charges otherwise remain intact.") .


21

Brooks challenges the PSR's conclusion that he used the proceeds of his insider trades to "purchase costly and lavish items and services for himself and his family" because: (1) there is no evidence of these purchases; and (2) if he had made those purchases, the government would not have been able to seize as much as it did. This argument is patently frivolous.

Firstly, many of the items seized as traceable to the insider trading offenses are the very same costly and lavish items that Brooks claims do not exist. Summarized below is a list of luxury goods that the government identified as traceable to the $186 million generated by the insider trading sales. Luxury Items Purchased with Insider Trading Proceeds

Asset Description Amount of Record No. 3 Monies Citation

Traced 113 Ferrari 612 Scaglietti $280,464 . 00 GX13501 N/A Men's Patek Philippe Watch 18 $11,850.00 GX13503

k Manual Wind Plain Gondolo, Ref. 5111/J

N/A Men's Patek Philipe Watch, 18k $20,400.00 GX13503 Rose Gold Manual Wind Plain Gondolo, Ref 5111/PR

N/A Men's Patek Philippe Watch 18k $12,750.00 GX13503 Rose Gold Manual Wind Gondolo Silver Dial, Ref 5111/R

N/A Men's Patek Philippe Watch $12,750.00 GX13503 18k-wg Manual Wind Gondolo Silver Dial, Ref. 5111/W

112 Men's Patek Philippe Watch 18k $83,250.00 GX15503 Rose Gold Manual Wind day-date Silver Dial, Ref 5970/R

N/A Patek Phillipe Men's Watch 18k $32,750.00 GX13504 Rose Gold, Ref 5070R

3 "Asset No." refers to the in the Preliminary Order of seized are noted as "N/A." testified as to the tracing forfeiture hearing.

numbers assigned to each seized asset Forfeiture. Assets that were not Special Agent Robert Cappadona also of these assets during the


22

Asset Description Amount of Record No. 3 Monies Citation

Traced N/A Patek Philipe Men's Watch $52,395 . 00 GX13505

Platinum Automatic Date GTs, Ref 5059P

107 Patek Phillipe Men's Watch $12,565.00 GX13505 18kwg Manual Wind Date GT's Ref 6000/W

N/A Patek Phillipe Men's Watch $26,110.00 GX13505 Nautilus Power Reserve 18kwg Manual Wind Plain GTs , Ref 3711/1W

N/A Fred Ladies Watch 18kwg Quartz $59,000.00 GX13506 Plain w/Brilliant Diamonds, Ref 7J0039

108 Fred Ladies 18kwg Necklace, $42,400.00 GX13506 Fancy Clasp and Brilliant, F W2 Diamonds, Ref 7J0039

109 Patek Philippe Ladies Watch $70,000.00 GX13506 18kwg Quartz Plain GTs, Ref 4910/51W

N/A Patek Phillipe Men's Calatrava $17,000.00 GX13506 Watch 18kwg Automatic Date GTs, Ref 5109/W-010

106 Breitling Men's All Diamond $87,500 . 00 GX13507 Flying B Watch Automatic Date GTs, Ref J2836263/A636

N/A Second Chance Yellow/Black $46,085.00 GX13509 White Puzzle Diamond dial Stainless Steel Case with Diamonds ... , Invoice 251.471

110 Second Chance Splash Diamond $21,500.00 GX13509 Black Dial ... , Invoice 251. 471

111 Second Chance Splash Diamond $18,000.00 GX13509 Pink Dial ... , Invoice 251.471

Secondly and as noted above, while the government seized many of the assets traceable to Brooks's insider sales, it did not seize all of them. Many assets were not recovered, and other monies were dissipated. In addition to the unseized assets listed above, and by way of limited e xample only , the government did not recover the $3 million sent on September 16, 2006 from the True Grit account at Goldman Sachs to an attorney,


23

GX 13501, or the $100,000 sent to Arlene Segal for expenses relating to a Bat Mitzvah.4 Without a doubt, Brooks spent considerable sums on luxuries and services for himself and his family.

32-34, 107 and 123. First, Brooks objects to the PSR's "wholesale acceptance of the word of Dawn Schlegel." Brooks Letter at 9. This obj ection is too vague to merit a response and should be denied. To the extent that Brooks objects to the PSR's accurate characterization of a particular witness's sworn trial testimony, the obj ection is without merit and should be denied.

Second, as to PSR ~~ 32-34, Brooks argues that, because portions of the R&D scheme were not presented to the j~ry, he does not merit a leader or organizer role enhancement under the Guidelines. The government submits that Brooks's supervisory and management role in these crimes is clear from the record. See, e.g., Tr. 5789, 5796-97, 5801-03i Tr. 6479-80, 2622-24, 6480-81 (Brooks threatened Travis Brooks when he reported the overvalued inventory to auditors) i Tr. 6714 (Brooks attempted to cover up the inventory overvaluation scheme by ordering Dawn Schlegel to delete Travis' inventory summaries) i Tr. 6617-18, 2587-88 (Brooks used the Zylon write-down as an opportunity to cover up the overvalued Interceptor inventory scheme and the scheme to plug inventory with 62,975 non-existent vests). Brooks was the Chief Executive Officer of the company. Moreover, numerous witnesses testified regarding his controlling management style. Indeed, government points the Court to General Ellis's testimony about Brooks's control over DHB and his attention to detail. General Ellis described Brooks's management style as "[c]ontrolling, detailed." Tr. 821. General Ellis explained how controlling Brooks waSi General Ellis, who was the President of the Company and a member of the Board of Directors, was required to get Brooks's approval for all expenditures, even expenditures as small as $200. Tr. 466-67, 472. Similarly, Mary Kreidell described Brooks as a "hands on manager . [who] was very involved in the business." Tr.

4 Of the $100,000, $40,000 was disbursed on June 30, 2005 from the Pathfinder Trust account, and $60,000 was disbursed on September 30, 2005 from the Like a Prayer Trust. Tr . 298-99 (Arlene Segal creates, designs and manufactures invitations) i Tr. 316-24 (Segal testimony about one of the checks). See also 3500-RC-23 at 51 .


24

1014-15 . Likewise, Donofrio testified that he was a "hands-on CEO" who was "very involved in the business . " Tr. 14750. Additionally, the testimony of witnesses such as Geraldine Bongarzone, Elinore Kaye, Michael Duffy, Richard Carey and Marylou Segismundo showed Brooks's everyday oversight into TAP, looting and other criminal matters. See, e.g., Tr. 1264-65 and 1273-74 (Bongarzone) ; Tr. 1508-13, 1599-1600 and 1611-1614 (Kaye) ; Tr. 1311-13, 1319, 1322-27 and 1331-34 (Duffy) ; Tr. 11843-45, 11847-53 and 11871-72 (Carey) ; and Tr. 4769-4770 (Segismundo) . Many other witnesses and documents established the same principle: Brooks was an organizer and manager.

In addition, the enhancement applies because there were five or more knowing participants. U.S.S.G. 3B1.1{a). Indeed, Schlegel, Brooks, Hatfield and Lennex were all convicted . Ronda Graves testified about her knowing commission of fraud. See Tr. 3189-3190. Other witnesses, such as Joseph Giaquinto (Tr. 4508-11, 4525-26, 4528-32, 4640), Jay Chin (Tr. 1556-1557), Carl Conte (Tr. 946-949) and others, described fraudulent acts that they committed at Brooks's direction . Moreover, as discussed above, Nadelman was a participant in the fraud as he falsely testified before the SEC and Jeffrey Brooks was involved in Brooks's attempted insurance fraud as set forth below . For all of these reasons, the objection should be denied.

Even if the Court found that there were not five or more knowing participants, the enhancement applies because the fraudulent schemes were "otherwise extensive." U.S.S.G. 3B1.1 (a) . "In assessing whether an organization is \ otherwise extensive,' all persons involved during the course of the entire offense are to be considered. Thus, a fraud that involved only three participants but used the unknowing services of many outsiders could be considered extensive." Id. Application Note 3. Here, not only did Brooks use the knowing participants discussed above, he also used numerous unknowing participants such as lawyers, auditors and employees in furtherance of his fraudulent schemes. In addition, the fraudulent schemes went on for years. Indeed, Brooks's unauthorized compensation started in the 1990s and continued after he left the company.

Brooks does not object to the Probation Department's recitation of the proof at trial with respect to the R&D scheme. He instead claims that the "district court's finding that the government failed to prove the charged overall R&D scheme is


25

inconsistent with and contradicts the PSR's role enhancement based on the conclusion that Brooks was an organizer of the charged schemes." Brooks Letter at 9. Brooks conflates the Court's decision with his role in the R&D scheme. As proven at trial, Brooks was the leader of the R&D scheme as Dawn Schlegel needed and obtained his approval every time expenses were reclassified from research and development to cost of goods sold.

The Court's decision to strike paragraph 22 of S-2 had nothing to do with Brooks's role in the scheme, but instead was predicated on the Court's finding that the R&D scheme alleged in S-2 was larger in scope--with $22 million in reclassifications occurring from 2003 through the first three quarters of 2005--than actually proven at trial. See Hatfield, 724 F. Supp. 2d at 327 (~although a reasonable jury could find Mr. Brooks guilty of insider trading based on DHB's failure to disclose two incidents where DHB reclassified the costs of goods sold as R&D to achieve a desired profit margin (supporting Superseding Indictment ~~ 19-21), the Government1s opposition papers do not support finding him guilty of the larger fraudulent reclassification scheme that the Superseding Indictment alleges (Superseding Indictment ~ 22)") i see also United States v. Hatfield, 06-550 (JS), 2010 WL 2816326, at *2 (E . D.N.Y. Jul. 16, 2010). Significantly, the Court did find that ~the Government's proof does establish a securities fraud, at least for Rule 29(a) purposes." Id. at 6-7 n.2. Finally, Brooks's argument that the R&D scheme is time-barred is improper and meritless for the reasons discussed above and in the government's opposition to Brooks's motion to dismiss filed on October 26, 2012.

35-36. Brooks contends that he was not a leader or organizer of the PACA overvaluation scheme. Brooks Letter at 9. The PSR does not state that he was. Neither the government, nor the Probation Department argue that Brooks organized the PACA fraud. Rather, the evidence adduced at trial demonstrated that Hatfield initiated the scheme. That being said, the evidence also demonstrated that once Travis Brooks complained about the inventory overvaluation, David Brooks stepped in. Brooks threatened Travis Brooks and ensured that the auditors would not uncover that DHB had been overstating the value of inventory . Regardless, Brooks does not need to be a leader or organizer in every single one of the fraudulent schemes to warrant an aggravating role enhancement. It is sufficient that he led the unauthorized and undisclosed executive compensation scheme, the


26

two TAP schemes, the non-existent inventory scheme and the R&D scheme. The evidence adduced at trial plainly established that he led those schemes.

Brooks argues that Patricia Lennex's probationary sentence necessarily means that Brooks's role has been overstated. Brooks Letter at 10. This argument is based upon multiple faulty assumptions. First, Brooks contends that Lennex was a major figure in the PACA fraud who received a low sentence for her participation in that same fraud. Id. Lennex pleaded guilty to a superseding information charging filing a fraudulent and false 2005 tax return, not anything to do with PACA or the numerous frauds for which the jury convicted Brooks. See Docket entry no. 1486. Second, the government has never claimed an aggravating role for Lennex in the PACA accounting fraud, just that she was involved with Brooks and Hatfield. See S-2 ~~ 23-24. Third, even if Lennex did have an enhanced role, which she did not, it would not absolve Brooks of his own enhanced role.

37-40. Brooks is correct that the Court held that "Brooks [was] acquitted of the insider trading charges to the extent that those charges are predicated on DHB's allegedly overstated inventory." Docket entry no. 1199. His remaining arguments are repetitive and without merit as discussed above

44. Brooks lodges a number of obj ections to the description of TAP in this PSR paragraph. Brooks Letter at 10. First, Brooks argues that Terry Brooks did not "set up" TAP. He is correct. The government suggests that the PSR be amended to have "Jeffrey Brooks, David Brooks's brother," replace "Terry Brooks." Brooks other factual objections to this paragraph should be denied.

Brooks argues that there .was evidence supporting the argument that Terry Brooks was an active manager of TAP . He is wrong. There was no evidence at trial that Terry Brooks ever had any actual involvement with TAP i instead, in addition to Schlegel's testimony, the overwhelming evidence established that David Brooks controlled TAP. See, e.g., Tr. 5510, 5515-23, 5589 , 5955 , 5985 , 5770 , 5901, 6740 - 41, 814 0 i GX 5135 , 6025 , 6042-45, 6063 and 6184-91. Indeed, Geraldine Bongarzone, an employee of TAP, testified that she reported to Schlegel and David Brooks and "never dealt with Terry Brooks [when it came to TAP matters]." Tr. 1264-65, 1273-74. Similarly, Michael Duffy, TAP's controller, testified that he was interviewed by Schlegel,


27

he provided reports of TAP's inventory to David Brooks, and he reported to Schlegel and David Brooks . Tr. 1311-13, 1319, 1322-27 and 1331-34 . Further, James Compton, TAP's plant manager, testified that he never met or spoke to Terry Brooks, but he did talk to David Brooks about TAP. Tr. 1418, 1431, 1459. Elinore Kaye, TAP's bookkeeper, testified that she was hired by Schlegel, she was initially paid by DHB, and she had no interaction with Terry Brooks regarding TAP. Tr. 1508-13, 1599-1600. Carl Conte also testified that he never dealt with Terry Brooks regarding TAP. Tr. 949. In addition, Travis Brooks explained that Hatfield told him not to "concern [him]self with the TAP transactions at Point Blank and TAP. Don't ask any questions regarding the TAP. That's David's deal. Don't go any further. " Tr. 2568. Moreover, Richard Carey, a TAP employee, testified that he reported to David Brooks, he provided lists of TAP's inventory and cash balances to David Brooks, he prepared TAP's tax return and gave those returns to David, not Terry, Brooks, and he never talked to Terry Brooks regarding TAP. Tr . 11843-45, 11847-53, 11871-72; GX 6044-45. Finally, Brooks's own witness Moshe Yair testified he worked for TAP for approximately six years and he . never spoke to Terry Brooks regarding TAP, nor did he ever see her at TAP. Tr. 16880-81.

In denying Brooks's Rule 29 motion, the Court stated that

The record contains more than enough evidence for the jury to infer that Mr. Brooks knowingly facilitated DHB's nondisclosure concerning TAP. Among other things, the Government evidences that: (1) in 2002, Mr. Brooks, Ms. Hatfield and Ms. Schlegel discussed whether to include TAP on a list of DHB's top vendors; (2) Mr. Brooks engineered a $4 million \ sham' transaction with his wife, Terry Brooks, to prevent DHB's auditors from asking questions about TAP; (3) Mr. Brooks conspired with Ms. Hatfield and Ms. Schlegel to submit a list ofDHB's top vendors for an audit that omi t ted TAP; (4) to respond to a likely SEC inquiry, DHB, wi th Mr. Brooks' input, prepared binders concerning its TAP relationship that contained significant misrepresentations and omissions, including: (i) not disclosing that DHB paid some TAP


employees' salaries; and (ii) forged backdated promissory notes attributed to TAP; and (iii) omitting TAP insurance policies that DHB paid for. Tr. 5515, 5770, 5889, 5904, 5905-06, 5921-22, 5954-5955, 10394-99, 12520.

Hatfield, 724 F. Supp. 2d at 326.

28

Misleadingly, Brooks cites to an interview of Patricia Lennex, not to an exhibit at trial or any admissible testimony. Brooks Letter at 10. After the cited interview, the government indicted Lennex, who has never testified. Despite Brooks's bare argument, no evidence supports the obj ection, which should be denied.

Brooks next argues that a series of mitigating facts should be added to the paragraph. To the extent that Brooks argues that Terry Brooks's ownership conveyed benefits upon TAP, such benefits were conveyed by fraud. TAP was not actually a "woman owned business" or a "small business." After all, PACA employees provided much of the TAP labor. Therefore, Brooks has actually identified aggravating sentencing factors.

As to the "Mentoring Business Agreement," Brooks at tempts to revive a failed argument that TAP's existence and ownership were adequately disclosed. Tr. 20217-20218. The argument was rejected by the jury and, because Brooks has failed to identify an error in the PSR, this aspect of the obj ection should be denied .

45, 46 and 49. Brooks next provides a series of objections that seek to add legal arguments and mitigating facts to the PSR's discussion of TAP. Brooks Letter at 11. First, Brooks argues that the TAP schemes were either uncharged or time-barred. As discussed above, and repeatedly stated by the Court, both TAP schemes were set forth in the indictment. Moreover, the time-bar argument is the subject of a separate motion before the Court.

Brooks next argues that the restitution losses must be limited by the failure to plead the failure to disclose TAP as a related party . Brooks Letter at 11. Because the Court has already repeatedly ruled that both TAP schemes were properly pleaded, this aspect of the objection to paragraph 45 should be denied. Tr. 19454-19455.


29

Brooks also argues that the PSR should be amended to include the opinions of his expert witness, Gary Karlitz. Brooks Letter at 11. According to Brooks's argument to the jury, this testimony was adequate to warrant his acquittal on the TAP schemes. Tr. 19770. The jury rejected Karlitz's testimony. This aspect of the objection should also be denied.

As to PSR ~ 46, Brooks argues that the PSR should be amended "to mention that TAP paid rent to PACA for the use of PACA's space." Brooks Letter at 11. There are multiple problems with this argument. First, testimony at trial established that the lease was fraudulently back-dated to give the impression of legitimate, arms-length relationships between PACA and TAP. Tr. 5917-5918. This testimony was later corroborated by a defense witness, who actually owned the property and never heard of any lease between PACA and TAP. See Tr. 16539. Also, mere citation to a factual argument that was rejected by the jury does not merit a change to the PSR.

As to PSR ~ 49, Brooks argues that the PSR should be amended to make it clear that the Court cannot consider the "innocent conduct" of paying his own expenses. Brooks Letter at 11. In context, this argument makes little sense. First of all, all of those expenditures show Brooks's control of TAP--a fact that he still denies - -and are appropriately considered by the Court. Moreover, those personal expenses provide the corrupt motivation for Brooks's commission of this scheme. If the relationship between DHB and TAP were scrutinized, then Brooks would have to consider lowering his personal profits to better serve the shareholders of DHB. Instead, Brooks, from his perch controlling both TAP and DHB, was able set prices at whatever level he wanted and spent the TAP profits on himself and his family with abandon. The Court, just like the jury, can and should consider these expenditures. The objection should be denied.

64. Paragraph 64 should be revised to reflect that Brooks failed to report a total of in excess of $1.7 million on his IRS Form 1040 for the calendar year 2004. See S-2 ~ 119.

64-68 and 94. Brooks maintains that the Probation Department should be ordered to prepare a PSR for Dawn Schlegel prior to submitting its PSR. Brooks Letter at 13, 28. In addition, Brooks claims that Schlegel's role should be extensively discussed in the PSR. Brooks cites neither case


30

law, nor any Rule in support of this argument, which runs counter to the district's custom in cases involving cooperators. The objection should be denied as baseless.

Determination of Guideline Loss

69. Brooks argues that the PSR grouped his offenses arbitrarily "for the purposes of convenience." Brooks Letter at 13-14. In making this objection, Brooks misreads the PSR. Rather than grouping the offenses arbitrarily and conveniently, the PSR is listing the grouping in this paragraph for the "convenience" of the reader. In other words, the listing of the groups was made for convenience, not the actual grouping. This reading of the paragraph is further corroborated by the fact that the grouping was actually done correctly. Indeed, Brooks does not even suggest an alternative grouping of his offenses. The objection should be denied.

70. As discussed in ~~ 32-34 above and ~ 81 (c) below, Brooks's role in the schemes to reclassify Point Blank's cost of goods sold to R&D, overvalue Point Blank inventory at PACA, overvalue Intercept vest inventory, and plug inventory with 62,975 non-existent outershells was not "minimal or non-existent" and, contrary to the defendant's claim, the Court never made such a finding. Brooks's remaining arguments are repetitive and without merit.

71-75. Event study methodology is a helpful tool to assist the Court in determining investor loss particularly because the Guidelines provide that the "estimate of loss shall be based on available information, taking into account, as appropriate and practicable under the circumstances, factors such as . [t]he reduction that resulted from the offense in the value of equity securities or other corporate assets." U.S.S.G. 2Bl.l, app. note 3 (C) (iv) (Nov. I, 2005). As correctly noted in the PSR, investors in DHB's common stock suffered heavy losses conservatively estimated to be approximately $110 million by NERA Economic Consulting based upon institutional holdings data from SEC filings. See NERA report of June 22, 2012 (the "NERA Report") . Moreover, NERA recently refined its estimate of aggregate investor losses using the proof of claim data described below that was received by claims administrator Gilardi & Co. ("Gilardi") in this case. NERA's base case estimate of aggregate investor losses using this data is $109 . 2

Case 2:06-cr-00550-JS-AKT Document 1661-1 Filed 05/20/13 Page 1 of 30 PageID #: 16466

31

million to $111.9 million. See Rebuttal Report of Jordan G. Milev, Ph.D dated May 20, 2013 ("NERA Rebuttal Report") ~~ 6-7, submitted herewith.

NERA's $110 million loss figure is conservative for a number of reasons, but particularly because it does not include the price decline resulting from a January 11, 2005 Newsday article about the defendants' insider sales, which the defendant's trial expert found to be statistically significant. Including the market-adjusted decline on the date of the Newsday article as part of investor losses would add approximately $41 million to the Guidelines loss amount. NERA Rebuttal Report ~~ 16-17.

Brooks's event study, authored by John F. Gould of Cornerstone Research and dated February 22, 2013 (the "Gould Report"), should be rejected by the Court as a matter of law for a number of reasons, but primarily because it is wholly divorced from the loss provisions of the U.S. Sentencing Guidelines that require the Court to reasonably estimate "the reasonably foreseeable pecuniary harm that resulted from the offense." See U.S.S . G. 2B1.1 app. notes 3 (A) (i), 3 (C) (Nov. 1, 2005) i i. "Pecuniary harm" is "harm that is monetary or that otherwise is readily measurable in money." Id. app. note 3(A)(iii). "Reasonably Foreseeable Pecuniary Harm" is "pecuniary harm that the defendant knew or, under the circumstances, reasonably should have known, was a potential result of ' the offense." Id. app. note 3 (A) (iv) . The Gould Report fails to apply these definitions in reaching its erroneous conclusion that DHB investors only lost $10 million in this case.

The Gould Report asserts that a number of the statistically significant events that NERA found resulted from the fraud committed by Brooks and his co-conspirators are not "fraud related" because they are only associated with the "effects of fraud." For example, the Gould Report astoundingly concludes that the resignations of Director of Finance Lawrence Litowitz on May 4, 2006 and Director and Audit Committee Chairman Jerome Krantz on May 11, 2006, were not fraud-related even though Mr. Litowitz testified that he left in part because he "believe [d] there may have been illegal banking acts [at DHB] which I just wouldn't tolerate being involved with, and it was just an untenable situation," and Mr. Krantz testified that he resigned because he "did not trust the management of [DHB] any longer."

Case 2:06-cr-00550-JS-AKT Document 1661-1 Filed 05/20/13 Page 2 of 30 PageID #: 16467 32

NERA Report ~ 25 n.46i ~ 26. Similarly, the Gould Report claims that DHB's revelation on April 18, 2006 that its revolving line of credit lender, Lasalle Business , Credit, LLC, issued a notice of default was not a disclosure of fraud, but was associated with "the effects" of a fraud. Gould Report ~ 34. The Gould Report misses the point- - it is precisely the pecuniary effects of the fraud that the Court is entitled to consider in assessing evidence of loss. U.S.S.G. 2B1.1 app. note 3(A) (i) (Court must determine "reasonably foreseeable pecuniary harm that resulted from the offense") .

Similarly absurd is the Gould Report's claim that the March 16, 2005 investor conference call had "nothing to do with fraud." Gould Report ~ 26. As the Court may recall, at trial the government proved that when confronted by analysts and investors on that call, both David Brooks and Sandra Hatfield attempted to cover up the ongoing inventory fraud at the company and lied about the reason they could not talk about their illegal insider stock sales that they had profited from just a few months earlier. Specifically, when asked by an analyst about high inventory levels and the potential of a write-down, Sandra Hatfield, rather than reveal she had conspired with Brooks to inflate the value of inventory to boost profit margin, deliberately diverted the discussion by pointing out that inventory values had not increased much if calculated as a percentage of year-over-year annual revenue. Gould Report ~ 26 n. 20. ).

In reviewing the March 16, 2005 conference call, the Gould Report fails to acknowledge that the defendants lied to analysts about the reason for rising inventory levels. The company was not stock-piling raw ballistic materials as the defendants led analysts to believe. Ballistic materials were so scarce that upon their delivery to Point Blank, they were inserted into the Interceptor vests and shipped out immediately and never remained in inventory very long. Tr. 3308.

Likewise, rather than admit that he and Hatfield had illegally traded on inside information when they unloaded over $180 million in DHB shares in November and December 2004, Brooks refused to explain why he had sold roughly one-third of his DHB holdings and would not comment on whether he thought DHB stock was still a "great buy" in the face of that massive insider


sell-off or provide forward-looking guidance. Report ~~ 21-26.

33

See NERA Rebuttal

Each of the foregoing events is a reasonably foreseeable result of Brooks's and his co-conspirators' criminal conduct. The Court can and should consider the statistically significant stock price declines resulting from these events in estimating Guidelines loss and restitution to investors in this case.

The Gould Report also fallaciously claims that an additional event should be included in the loss analysis- -the day the company placed Brooks on administrative leave- -because it was "fraud-related." Gould Report ~ 54. This assertion stands logic and the loss provisions of the Sentencing Guidelines on their head. The company placed Brooks on administrative leave as a remedial measure to address the fraudi the positive stock price movement associated with this event is therefore the result of the company's remedial measure, not Brooks's criminal conduct. See U.S.S.G. 2Bl.l app. note 3 (A) (i) (Nov. I, 2005) (defining "Actual Loss" as "reasonably foreseeable pecuniary harm that resulted from the offense") i see also id. app. note 3(A)(ii)(defining "Intended Loss" as "pecuniary harm that was intended to result from the offense") .

The Gould Report also criticizes NERA for using the multi-day event window of May 24 and May 25, 2006 to measure the stock price reaction to DHB's May 23, 2006 announcement that it was not in compliance with the American Stock Exchange's listing standards. Gould Report ~ 42. As discussed in the NERA Rebuttal Report, NERA correctly used an objective, unbiased, ex-ante specified methodology to evaluate price response subsequent to each disclosure. NERA Rebuttal Report ~~ 49-51. If significant abnormal daily returns continue past the first day, and no new information has been released, as occurred after DHB's May 23, 2006 announcement, it is appropriate to look at the stock price movements beyond just the first day following the announcement because statistical evidence shows that the market is continuing to process the information from the original disclosure. See id ..

The Gould Report agrees that the SEC Wells Notice that DHB received on May 25, 2005 was caused by fraud, but claims that the resulting loss is only reflected in the 800 shares that were traded on the morning of May 26, before trading was halted until


34

July 6, 2006. As discussed as length in the NERA Rebuttal Report, it is appropriate to include the price response through the stock halt as investor losses because the market price was not able to fully reflect the market reaction until after trading resumed following the halt. NERA Rebuttal Report ~~ 52-61.

The Gould Report attempts to impugn NERA's multi-sector multi-trader model ("multi-trader model") which is the current state of the art used to estimate aggregate investor loss in fraud on the market cases. NERA Rebuttal Report 66-72. Notably, Mr. Gould fails to inform the Court that his firm also employs a multi-trader model for corporate defendants in class action cases. See id. ~ 67 n.80 . Moreover, the loss calculated using NERA's multi-trader model is consistent with the actual proof of claim data that has been obtained by Gilardi & Co. in this case. Id. ~~ 75-78. Finally, contrary to the Gould Report's suggestion, NERA's multi-trader model has not been excluded on Daubert grounds. 5 See id. ~ 81.

76. As discussed below in ~ 81, the PSR's calculation of the company's loss of approximately $97 million resulting from the offenses of conviction is correct.

77-78. Brooks maintains that insider trading Guideline 2B1.4 is not the correct provision for calculating his total offense level for insider trading Counts 6 through 11 because 2B1.4 only applies to Title 15 violations, not Title 18 violations such as 18 U.S.C. 1348. Brooks Letter at 16-17. Brooks is incorrect. According to the U. S . Sentencing Commission, "[c] ertain other [non-Title 15] offenses, e. g., 7 u. S. C. 13 (e), that involve misuse of inside information for personal gain also appropriately may be covered by this guideline. " See U. S. S. G. 2B1. 4, App. Note 2. Moreover, the Court is authorized under the cross-reference provision of 2B1.1 (c) (3) to apply insider trading guideline 2B1.4 in this case because Brooks's conduct, as set forth in the allegations underlying Counts 6 through 11, establishes the elements of insider trading .

5 In any event, as this Court has correctly observed, Daubert does not apply in sentencing hearings . Hatfield, 795 F. Supp.2d at 229.


35

The cross-reference provision of 2Bl.l(c) (3) applies when "the conduct set forth in the count of conviction establishes an offense specifically covered by another guideline in Chapter Two (Offense Conduct)." U.S.S.G. 2B1.1(c) (3) (2002) (emphasis added) ; United States v. Genao, 343 F.3d 578, 583 (2d Cir. 2003). The Second Circuit has interpreted this language to mean that 2Bl.l (c) (3) is applicable "only if the conduct alleged in the count of the indictment of which the defendant is convicted establishes the elements of another offense." See id . That is

-- --

the case here. Brooks does not deny that the conduct underlying Counts 6 through 11 described in S-2 establishes the elements of insider trading. Since insider trading is "specifically covered by" 2Bl.4, the Probation Department correctly applied 2Bl . 4. See also U.S.S.G. 2Bl.4, App. Note.

Contrary to Brooks's suggestion, he is not being impermissibly punished "twice for the same money, i.e., the loss to the investors and the gain to Brooks" because under Guideline 3Dl.2(d) the insider trading counts are grouped with the securities fraud, securities fraud conspiracy, mail fraud, wire fraud and mail and wire fraud conspiracy counts to arrive at a combined adjusted offense level which in this case is not increased by any additional units under 3Dl.4. See PSR ~~ 133-146. In any event, gain and loss are not "the same money" as Brooks claims. According to the U.S. Sentencing Commission, "[i]nsider trading is treated essentially as a sophisticated fraud" which measures a defendant's gain, "i.e., the total increase in value realized through trading in securities by the defendant and persons acting in concert with the defendant or to whom the defendant provided inside information, is employed instead of the victims' losses. U.S.S.G. 2Bl.4 (App. Note 2 -Background) . This Court also has recognized that insider trading gain is distinct from investor loss because gain is a function of the impact on stock price at the time the defendant traded. See Hatfield, 795 F. Supp. 2d at 236 n.12 .

Brooks's argument that the forfeiture of insider proceeds overstates his true gain should be rej ected reasons discussed in paragraphs 7-12 and 21 above.

79-80. Gilardi was retained by the government to investor-victims to present their claims for restitution calculate the individual and aggregate amounts of those based on a methodology provided by NERA. Gilardi

trading for the

assist and to claims

is the


36

appointed claims administrator in the DHB Industries Inc. Securities Litigation, No. 2:05-cv-04296-JS-ETB ("DHB Securities Litigation") . Gilardi previously received and analyzed Proof of Claim data in the DHB Securities Litigation that are relevant to the issue of restitution in this case. The claims administration procedures and analysis that Gilardi employed to determine investor restitution in this case are summarized below and set forth in greater detail in Gilardi's letter to the Probation Department, dated May 8, 2013, submitted herewith.

As part of the restitution claims process, Gilardi developed a plan to send an instructional cover letter and Proof of Claim form to every class member that had been identified in the DHB Securities Litigation. Additionally, a cover letter and Proof of Claim was sent to a list of securities brokers and other financial institutions maintained by Gilardi, seeking their assistance in identifying additional possible victims among their customers. The cover letter and Proof of Claim form were ultimately mailed to 136,445 persons and entities who were either previously identified as class members or were newly identified as possible victims in a recent solicitation of name and address information from various financial institutions.

NERA established a relevant period during which the defendants' illegal actions artificially inflated the market price of DHB common stock, thereby potentially harming investors who purchased shares during an inflated period. That period, May 1, 2003 through August 18, 2006, substantially corresponds to the Class Period in the DHB Securities Litigation. Because the periods are not identical, however, potential victims were urged to file a claim in the restitution proceeding even if they had previously filed a class action claim. The restitution Proof of Claim asked investors to list the shares which they held immediately prior to the period of artificial inflation, those which they purchased and sold during that period and those which they held at the end of the period. Where an investor submitted a claim for restitution, those listed transactions were used by Gilardi to calculate the dollar amount of the harm caused to each victim and to all of the victims in aggregate. Additionally, if a class member submitted a claim in the DHB Securities Litigation but did not submit a claim for restitution, that investor's previously submitted list of transactions was used to calculate a restitution amount for the investor. A total of 9,637 new restitution Proofs of Claim were submitted to Gilardi and an additional 11,893 claims were


processed using administration. 7

data collected during

37

the class action

NERA supplied Gilardi with a table of artificial inflation amounts for the com~on shares of DHB for each trading day during the relevant period. The inflation table is attached to Gilardi's letter as Exhibit B and is part of NERA's June 22, 2012 report previously supplied to Probation. That table and the transactions for each investor were entered into Gilardi's proprietary software, which then calculated a restitution amount for each share. As a result of these calculations, Gilardi determined that 6,360 claims were

DOJ Letter With Exhibits

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