Does the Sarbanes-Oxley Act deter the determined–or perhaps desperate–executive? An internal memo from the CFO to the CEO of DVI Inc., a Jamison, Penn., company that went belly up a year ago, would indicate that while Sarbanes-Oxley may terrify executives who realize certifying false results could land them in jail, it will not necessarily stop them.

DVI's became the 13th largest bankruptcy in 2003, a year of big busts. With a reported $1.8 billion in assets, DVI financed medical equipment like MRIs for health clinics and then sold bonds backed by the loans. After expanding rapidly in early 2003, DVI had a hard time selling enough bonds to back its bigger loan portfolio and turned to its own cash for funding, according to a court examiner's report in DVI's bankruptcy proceeding. DVI also started replacing bad loans with good, the examiner found, and ultimately began to hide non-performing loans by lending money to delinquent borrowers, so they could make timely payments.

According to an internal memo that is part of the bankruptcy filings, the prospect of the Sarbanes-Oxley sign-off threw the CFO into a panic. "We are no longer talking about a small problem. The hole has taken on unimagined size and consequences," CFO Steven Garfinkle wrote to CEO Michael O'Hanlon in the memo dated April 2003. Noting that the first-quarter report, which required certification, was "the first to put both of us on the spot," he warned that "we should not be putting ourselves, our homes and personal assets at this kind of risk as well as face the very real prospect of going to jail."

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