Blogs & Comment

Cheques, Memos and "Suspicions" at the Livent Trial

Of all the witnesses who have testified so far at the criminal fraud trial of Garth Drabinsky and Myron Gottlieb, Tony Fiorino has had the least amount of exposure to the Livent founders. On the witness stand, Fiorino could only testify about a single experience he had with Myron Gottlieb that seemed to indicate his knowledge of the alleged fraud that occurred at the theatre company. And earlier today, defence lawyers effectively cast doubt on that testimony. However, based on a single question asked by the judge at the end of the day, prosecutors may take some comfort in the effectiveness of Fiorinos testimony.
Fiorino testified he got all of his instructions from Gordon Eckstein, Livents former senior vice-president of finance and administration, and the man defence lawyers have characterized as an omnipotent, irrational, volatile, abusive bully who pulled the wool over Drabinsky and Gottliebs eyes and was the real mastermind of the alleged Livent fraud. Fiorinos one direct encounter with Gottlieb involved a scheme in which Livent used the accounts of Kofman Engineering and Execway two of its construction suppliers to purchase more than $1 million in theatre tickets to its production of Ragtimein Los Angeles. The tickets, some bought with the personal credit card of Kofman president Peter Kofman, were purchased to boost the sagging box office receipts of the L.A. production.
Eventually, the tickets were charged to the Ragtimebox office and accounted for properly on the companys books. But initially the ticket sales were improperly booked to the companys fixed assets and Kofman and Execway were compensated by submitting bogus invoices that purported to be for construction work not ticket sales. Fiorino testified that he personally hand delivered the invoices and cheques to Gottlieb for his signature informing him that they were for Kofmans L.A .ticket purchases, he told the court.
However, under questioning from Brian Greenspan, the lawyer representing Myron Gottlieb, Fiorino admitted he did not know if the cheques he delivered to Gottlieb were associated with the bogus invoices or with the legitimate payments. If you said to Mr. Gottlieb that this cheque was for RagtimeL.A., it actually was for RagtimeL.A., isnt it, Greenspan said referring to one of the legitimate cheque payments. There is nothing wrong with this cheque.
No, this one is offsetting the box office, Fiorino replied.
That effectively takes away the sting of Fiorinos earlier testimony against Gottlieb. If he cant be sure if he was delivering cheques associated with legitimate or bogus invoices in regards to the ticket scheme, then the judge will have little choice but to disregard the only direct evidence the controller has to offer against the Livent executive.
Fiorino also testified that Gottlieb liked to send out memos giving his opinions on accounting issues the company was facing, but the memos were usually ill-informed and often, just plain wrong. However, in none of the memos did Gottlieb suggest the company’s accountants do anything illegal, Greenspan suggested. “At no time did he ever suggest something that was improper,” said Greenspan.
“Not in the memos that I myself had seen,” replied Fiorino.
Greenspan also scored a less direct hit when he questioned Fiorino about US$10 million in pre-production expenses that he helped transfer into the companys construction accounts in the fourth quarter of 1997. Fiorino testified that he was concerned about the transfer because the amount was so large and would be difficult to hide and that many of the expenses related to advertising an expense that had absolutely nothing to do with the bricks and mortar of construction.
However, in referring to Livents 1997 year-end audit conducted by Deloitte & Touche, Greenspan pointed out several promotional and advertising costs that were identified and approved as legitimate expenses relating to the construction of the Ford theatre in New York after auditors discussed the accounting the Eckstein.
The advertising expenses identified by the auditors, Fiorino pointed out, related to promotional ads for the grand opening of the theatre itself and not for radio ads promoting individual productions. The invoices we looked at earlier were Echo advertising invoices that had nothing to do with the theatre, Fiorino said.
I didnt suggest that the Echo invoices were proper, Greenspan replied. What I suggest to you is it’s clear that if someone [presumably the omnipotent Mr. Eckstein] told Mr. Drabinsky and Mr. Gottlieb that advertising numbers were going into fixed assets, he could have justified it to them just as easily as he justified them to Deloitte.
“It’s possible,” Fiorino replied.
And while Greenspan may have effectively blunted Fiorinos testimony against Gottlieb he did add to the general understanding of the alleged fraud that occurred at Livent as well as the complicated conditions under which the accountants were working. Maybe an attempt to understand those conditions is what prompted Madam Justice Mary Lou Benotto to ask a question of Fiorino at the end of his testimony.
Actually, it wasnt even her question; it was a question from defence lawyer David Roebuck that Fiorino didnt quite answer yesterday. The question related to two instances where Eckstein ordered Fiorino to delete information from reports circulated to Livent senior managers that indicated that expenses were being improperly booked to the companys fixed assets. The question was whether or not you were suspicious that people at the top were being kept out of the loop, but you didnt answer. Benotto asked.
My impression was that the people at the top knew what was going on and deleting the information was not keeping them out of the loop, Fiorino said.
But you didnt have any direct contact with them, Benotto asked.
No, I did not have any discussion with them, Fiorino replied.
Prosecutors could take comfort from the fact the judge seemed to be interested in Fiorino’s impression about whether Drabinksy and Gottlieb knew about the fraud. On the other hand, the defence may be happy that she heard once again that Fiorino had no direct conversations with them about the fraud.
The trial resumes on Monday with the testimony of Chris Craib, a former Livent controller and a key prosecution witness. Craib produced numerous reports for senior managers that the prosecutors allege show that Drabinsky and Gottlieb were aware of the financial manipulations that allegedly occurred at the company. Other witnesses have also testified that Craib attended meetings in which Drabinsky allegedly ordered Eckstein to manipulate the companys financial statements. If past witnesses are any indication, Craib will be on the witness stand for quite some time.