DVI wants loans repaid
By JOHN WILEN
WARWICK - In a move that evokes comparisons to some of the larger corporate scandals of recent years, DVI, the bankrupt Jamison medical finance company, loaned its chief executive more than $500,000 - and loaned another senior executive $150,000 - in the years before the company spiraled into insolvency.
Now, the company wants former CEO Michael O'Hanlon to repay $510,000 of the $525,000 he borrowed between January 1996 and October 1998, according to documents filed in the company's bankruptcy case. And it wants former executive vice president Richard Miller to repay a $150,000 loan extended in August 1998.
DVI has sued both former executives to recover the money, plus interest on some of the loans. Neither O'Hanlon nor an attorney for Miller returned calls for comment.
O'Hanlon has repaid $15,000 of a $30,000 loan extended to him in 1998, court documents say. About $485,000 of the money loaned to O'Hanlon, and all of the money loaned Miller, was at an annual interest rate of 6 percent. O'Hanlon was loaned $40,000 interest-free.
The loans were due within 30 days of demand, or at the end of the executives' employment, court documents say. Both executives left DVI's employ on Aug. 27, 2003, the same day the company filed for bankruptcy court protection from creditors. The company has since demanded both repay the money, to no avail, the documents say.
DVI declared bankruptcy after it defaulted on loans, and after its auditors resigned in a dispute over the company's internal accounting controls. A court-appointed examiner is investigating allegations of accounting improprieties and fraud. Several shareholders have sued the company and its former top executives.
Shortly before filing for bankruptcy, DVI brought in a team of corporate turnaround specialists to run the company. The team is headed by Mark Toney, a partner at New York-based Alix Partners, who is DVI's acting CEO.
Corporate governance experts say the practice of lending executives money was not all that rare in the "roaring 90s." It was in fact only recently outlawed by the Sarbanes-Oxley Act of 2002, which sought to tighten many of the lax accounting and corporate governance rules many blamed for the meltdown of corporate giants such as Enron and WorldCom.
"It was one of the abuses that Sarbanes-Oxley ended," said Nell Minow, chairman of the Corporate Library, a corporate watchdog group based in Portland, Maine.
Before the rules were changed, about a third of the largest 1,500 companies in the United States had extended loans to their executives, according to a Corporate Library report published in late 2002.
Corporate loan abuse has figured prominently in the trials of Adelphia Communications founder John Rigas and former Tyco CEO Dennis Kozlowski.
Many companies never seriously expected the loans to be repaid, Minow said.
"It's not terrifically unusual," Minow said. "They often have been written off in the past."
John Wilen can be reached at email@example.com.
April 6, 2004 6:34 AM