Report slams DVI's execs



               The Intelligencer



DVI, the bankrupt Jamison medical equipment finance

company, engaged in a pattern of improper and "highly

suspect" loan extension and accounting behavior that

ultimately led to its collapse, according to a

bankruptcy court examiner's report filed yesterday.


"Driven by a domineering CEO and president [Michael

O'Hanlon], DVI attempted to meet its pressing

liquidity needs and compensate for inadequate

capitalization by various improper or highly


suspect measures," the report states.


The report stops short of alleging that company

executives and


directors broke any laws. But it describes their

behavior with words like "fraud" and "illegal," and

clearly opens the door to future actions by a variety

of investigators.


The report, filed by court-appointed examiner R. Todd

Neilson, a former FBI agent, said that Neilson

cooperated with several other agencies in conducting

the investigation, including U.S. attorneys in

Delaware and Pennsylvania, the Securities and Exchange

Commission, the FBI and the U.S. Postal Service.


The report is particularly hard on O'Hanlon, who

resigned last August on the day the company filed for

bankruptcy. At one point, Neilson calls a method

O'Hanlon and CFO Steven Garfinkel used to address a

shortage of capital "illegal," and at another alleges

he authorized "fraud."


O'Hanlon could not be reached for comment. At attorney

for Garfinkel declined comment.


Neilson based his report on company documents and

interviews with many former DVI officials, including

Garfinkel. He did not interview O'Hanlon, who told

Neilson he would exercise his Fifth Amendment rights

against self-incrimination if subpoenaed.


Neilson's report alleges that DVI's downfall has its

roots in a 1995 decision by O'Hanlon to aggressively

expand its operations. DVI was in the business of

financing the purchase of expensive medical equipment

for health clinics and doctors. When the loans reached

a certain critical mass, it would spin them off into

special-purpose entities, or "securitizations," which

were owned by separate groups of investors.



In 1995, according to Neilson's report, DVI expanded

into foreign investment, venture capital companies,

and other areas. "Unfortunately," the examiner wrote,

"the capital structure of DVI did not increase

commensurately, and serious fissures began to emerge."


>From 1995 on, Neilson writes, "Garfinkel was engaged

in a continual struggle to finance the business

operations of DVI from available sources."


Between 1995 and 2002, Neilson alleges, O'Hanlon

pushed an overseas expansion, "despite resistance from

virtually all of senior management and ultimately

DVI's board of directors."


That expansion required a cash outlay of at least $110

million, dealing the company a "particularly serious



But worse, Neilson writes, was the move by the company

during this period into issuing bad loans. Most of the

14,500 loans DVI extended were routine and proper,

Neilson writes. "However, for a small but exclusive

group of clients and borrowers, this process was

purposefully circumvented by DVI management."


It was also during this period that the company

adopted an unwritten rule: No loan would ever be

written off - that is, taken as a loss on its books -

if that could in any way be avoided.


That rule may have sealed DVI's fate.


"As the problem loans descended into an almost

hopeless state, what may have started as a

well-intentioned and logically sound business

practice, morphed over time into a purposeful attempt

by DVI to disguise substantial losses that should have

been reflected in loan reserves," Neilson writes.

"Those purposeful attempts reached almost comical



The company's loss allowance of $17 million on June

30, 2003, "was a serious and purposeful misstatement,"

Neilson writes. The appropriate amount should have

been $75 million to $120 million, he wrote.


John Wilen can be contacted via e-mail at

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