Guilty verdict brings Livent duo new celebrity status
Theresa Tedesco, Financial Post Published: Wednesday, March 25, 2009
In the end, the long-awaited courtroom drama proved almost anti-climatic.
With humane efficiency, Ontario Superior Court Justice Mary Lou Benotto took less than 10 minutes to finally bring the curtain down on one of the longest-running legal productions in Canadian history when she uttered the words "guilty on all three counts."
With that, the seven-year-old criminal fraud case against Garth Drabinsky, 59, and Myron Gottlieb, 65, the co-founders of now-defunct Livent Inc., had finally ended. The pair were each convicted on three counts of fraud and forgery in connection with the spectacular collapse of the live-theatre company in November, 1998.
All that remained was the palpable disappointment in the slumped shoulders of Drabinsky, the stoic stare of Gottlieb, and the tearful reactions of friends and family who sobbed and consoled each other.
The 30-minute public display of private grief in the fourth-floor Toronto courtroom provided the dramatic punctuation mark on the first major corporate criminal convictions in Canada.
Unlike some of her U.S. peers, Justice Benotto was not auditioning for reality television or preening for the klieg lights from the bench. That much was clear when she swiftly entered the fourth-floor courtroom at the appointed hour and began by reciting statistics: 62 days of trial; 7,000 pages of testimony, arguments and exhibits. The judge, who had previously presided over the controversial tainted blood trial, thanked the lawyers for their professionalism, assured everyone in the courtroom the complex issues were examined thoroughly and argued expertly, and delivered her reasons for the verdict in an 84-page document.
Turning to Drabinsky and Gottlieb, she said the reasons for her decision were too long to be read in the courtroom and urged them to read the document in its entirety because it would explain why and how she reached her verdict.
"The creative success that you achieved through your careers was spectacular," she told them, even praising the pair for accomplishments in live theatre, which had "reflected favourably on all of us in Canada."
"But this trial was not about that. This trial was about the accounting practices of Livent."
Without pausing for effect, Justice Benotto declared that the accounting system was "fraudulent," fraught with manipulations that occurred "systematically," and was "widespread and long-standing."
The punch line: "Most importantly, I have been satisfied beyond a reasonable doubt that you knew what was happening with the financial statements."
It would be premature to conjecture whether the two former Livent executives have any regrets they chose to be tried by a judge instead of a jury.
The high-profile demise of Livent in 1998 predated a series of stunning multi-billion-dollar accounting frauds – Enron, Worldcom, Tyco and Adelphia – that led to criminal convictions against prominent corporate executives in the United States who are already serving lengthy prison sentences.
Those guilty verdicts were all meted out by juries. Ditto in the case of Drabinsky's friend Conrad Black, who has already served one year of a six-and-a-half-year sentence in a Florida jail.
Livent, North America's largest producer of live theatre that brought musicals such as The Phantom of the Opera, Ragtime, Showboat and Kiss of the Spider Woman, became synonymous with Canada's perceived ineptitude at prosecuting white-collar crime.
Charged by the RCMP in 2002 with defrauding investors of $500-million, it took the Mounties three years to act after the U.S. Attorney for the Southern District of New York and the U.S. Securities and Exchange Commission filed a bevy of criminal and civil charges against Drabinsky and Gottlieb, as well as six other former employees, in 1999.
Each facing 140 years in prison and up to US$16-million in fines and fearing they wouldn't get a fair trial, the Canadian businessmen became fugitives from the United States and prepared to face the criminal charges eventually filed by the RCMP.
After a six-year delay, the long-awaited fraud trial finally began last May.
For five months, the two sides presented vastly different story lines to explain what led to the collapse of the company after Drabinsky and Gottlieb lost control in June, 1998 as part of an investment deal with Michael Ovitz, the former Hollywood talent agent and Walt Disney Co. executive.
Armed with a paper trail of 237 exhibits and 14 witnesses (seven former employees), Crown Attorney Robert Hubbard alleged the company's co-founders ordered accounting staff to doctor financial statements every quarter between 1993 and 1998 to ensure the company would meet financial projections.
The testimony portrayed hands-on businessmen who micro-managed almost every aspect of Livent's financial activities, including co-signing most of the cheques.
Testimony included first-hand accounts of alleged discussions about financial manipulations; abusive management practices, and internal memos with scribblings and notations of the two accused.
Through all of this, Drabinsky, the former larger-than-life showman, and Gottlieb sat silent. Neither testified at trial, nor did they call any witnesses in their defence.
Instead, they relied on their esteemed lawyers -- brothers Edward and Brian Greenspan -- to hammer away at the Crown's witnesses during cross-examination in the hope of portraying them as victims unaware of a pervasive fraud playing out under their noses until it was too late.
It was a strategy that made for some interesting courtroom theatre, but when it was over, Justice Benotto wasn't convinced.
"The actions of Mr. Drabinsky and Mr. Gottlieb satisfy all three of the ways a prohibited act can be conducted. They were deceitful, they perpetrated a falsehood and reasonable people would consider them dishonest," she declared in her ruling.
Not only did she "not accept that there is a proven absence of motive," she said that while both sides focused on financial gain, the evidence led her to look in another direction.
"This was no ordinary company. There was more than money at stake. There was the vision of the founders. The company was created by Mr. Drabinsky and Mr. Gottlieb with a goal to create an international live theatre production company that would be the best in the world. They were well on their way to achieving that goal," she wrote. "The company was always short of cash and needed investor money to keep coming in. To keep it coming in, the income had to be misstated. The money came in and the company grew. The income was manipulated in order to keep the money coming in so the next theatre could be built, so the next production could be staged...The motive was the continuation of the company."
The applause and accolades faded long ago for Drabinsky and Gottlieb. With the court's emphatic convictions, they have now secured new celebrity status as Canada's most prominent white-collar criminals.
