Risk Management

CFO to Pay $51M for Fraud, Sarbox Breach

Double-listed the company's assets to induce a bank to continue financing its operations.
Stephen Taub and Dave CookMarch 29, 2007

Steven Garfinkel, former chief financial officer of defunct health-care finance company DVI, was sentenced to 30 months in prison and ordered to pay $51 million in restitution, reported the Philadelphia Business Journal.

Last December, Garfinkel pleaded guilty to mail fraud and to violating the provision of Sarbanes-Oxley that requires CEOs and CFOs to certify financial reports filed with the Securities and Exchange Commission.

DVI provided financing to health-care providers seeking to purchase or lease diagnostic medical equipment; in turn, DVI secured financing from Fleet Bank (since acquired by Bank of America). According to U.S. Attorney Patrick L. Meehan, in a statement last November announcing the charges, Garfinkel defrauded Fleet by double-listing approximately $50 million in assets to induce the bank to lend money to DVI. The finance chief then falsely certified a quarterly report, Meehan also alleged.

Specifically, said prosecutors, beginning in 1999 Garfinkel directed DVI employees to falsify the borrowing-base reports submitted to Fleet, making it appear that some loan balances were less than 60 days old or that collateral listed to Fleet had not been pledged to any other financial institution. The falsified reports allegedly caused Fleet to believe that DVI was in compliance with its credit line and to continue to lend money to the company.

“Our financial system demands the kind of accountability where corporate officers take special care to ensure that corporations are run honestly and effectively,” said Meehan in November. “That didn’t happen in this case.”

The Associated Press noted that according to prosecutors, Garfinkel did not embezzle or otherwise use DVI’s money improperly for his own gain, though the government also reportedly noted that the former CFO benefited by retaining a job that paid him as much as $900,000 per year.

The AP also noted that Garfinkel has nowhere near $51 million, and that the sentencing judge ordered him to pay $200 a month toward restitution after he leaves prison.

Joel Friedman, Garfinkel’s lawyer, said that his client hoped that a guilty plea, “in some ways, would make amends for the horrible mistake that he had made,” according to the AP. “Even though he did it in an improper manner, he was trying to save the company — for the investors, for the employees, and for the creditors.”

DVI filed for Chapter 11 bankruptcy protection in August 2003, according to the Business Journal.

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