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Report slams DVI's execs By JOHN WILEN 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 blow." 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 proportions." 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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