Report slams DVI's execs
By JOHN WILEN
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
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
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