SEC Enforcement: Spotlighting Outside Directors

In an action filed February 28, 2011, the Securities and Exchange Commission (SEC) charged three outside directors of a public company with securities fraud based on their alleged failures to fulfill their roles and responsibilities as Board members. The SEC contends that by their actions and inaction, the outside directors – Jerome Krantz, Cary Chasin, and Gary Nadelman – facilitated and assisted in a massive accounting fraud at DHB Industries, Inc., a body armor supply company. The SEC identified the directors' failures as: failing to maintain independence and skepticism; neglecting to ensure adequate financial controls and addressing weaknesses; ignoring concerns and complaints brought to their attention; and allowing management to control investigations of potential problems. This action comes less than a year after the SEC charged an outside director and audit committee chairman of infoUSA Inc., Vasant Raval, for failing to respond to red flags about that