Three former directors of DHB Industries, a military body armor supplier accused of accounting fraud, have agreed to pay more than $1.6 million to settle the charges.

DHB, also known as Point Blank Solutions, supplied body armor such as bulletproof vests to both the U.S. military and various law enforcement agencies before it became embroiled in accounting fraud scandals.

The settlements were agreed to by Cary Chasin, Jerome Krantz and Gary Nadelman, former members of the board of directors at the Pompano Beach, Fla.-based company. The SEC said Thursday it would also impose permanent officer-and-director bars in addition to the monetary sanctions. The settlements are subject to court approval.

“These directors failed to comply with their responsibilities by ignoring the repeated red flags of the massive accounting fraud that senior management orchestrated at DHB,” said SEC Miami Regional Office director Eric I. Bustillo in a statement. “While we won’t second guess the good-faith efforts of most company directors, we will hold accountable those who completely abdicate the duties they owe to the companies and shareholders they represent.”

The SEC previously charged former DHB CEO David Brooks along with two other former DHB senior officers for their roles in the fraud.

According to the complaint filed against Krantz, Chasin, and Nadelman in February, they overlooked red flags that allowed senior management to manipulate the company’s reported gross profit, net income, and other key figures in its earnings releases and public filings between 2003 and 2005. The company overstated inventory values, failed to include appropriate charges for obsolete inventory, and falsified journal entries.

By ignoring the red flags, the three outside directors also facilitated misconduct by Brooks, who diverted at least $10 million out of the company through fraudulent transactions with a related entity that he controlled. DHB improperly paid millions of dollars in personal expenses for Brooks, including luxury cars, jewelry, art, real estate, extravagant vacations, personal aircraft usage, horse training and prostitution services. Despite being confronted with the red flags indicating fraud, Krantz, Chasin, and Nadelman approved or signed DHB’s false and misleading filings. Brooks allegedly sold his personal DHB stock for proceeds of about $186 million at the end of 2004 at the height of DHB's stock price, while in possession of material, non-public information—a violation of insider trading laws.

The SEC’s civil litigation against Brooks and the other two former DHB officers has been stayed, pending the resolution of criminal actions filed against them by the U.S. Attorney’s Office for the Eastern District of New York.

The U.S. District Court for the Southern District of Florida is expected to find Chasin liable for disgorgement of $100,000, plus prejudgment interest of $5,723 and a penalty of $100,000; Krantz liable for disgorgement of $375,000, plus prejudgment interest of $21,464 and a penalty of $100,000; and Nadelman liable for disgorgement of $820,000, plus prejudgment interest of $46,935 and a penalty of $100,000.

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