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Livent CFO Completes Marathon Testimony

At the Conrad Black trial in Chicago last year, David Radler spent four days on the stand being cross-examined by Edward Greenspan and lawyers representing two other Hollinger executives. Andy Fastow, the key witness in the trial of Enron CEO Ken Lay, also spent four days on the witness stand being cross-examined, as did Cynthia Cooper, the whistleblower in the accounting fraud trial of Alberta-born WorldCom CEO Bernie Ebbers. But earlier today, Maria Messina Livents former chief financial officer and arguably the most important witness in the case against company founders Garth Drabinsky and Myron Gottlieb completed her eleventh and final day on the witness stand.

The most interesting question on that final day on the stand came not from defence lawyers Edward or Brian Greenspan, but from the judge herself. At the end of Messinas testimony, Madam Justice Mary Lou Benotto asked the witness a number of questions. Most were innocuous, such as how long Messina had worked at Deloitte & Touche (11 years); whether when she joined Livent in 1996 as its vice-president of finance, it was anticipated that she would eventually become the companys CFO (yes, it was in her contract) and why she joined the theatre company in the first place (the chance to work with Gottlieb, expand her business horizons and join what she thought would be an exciting, entrepreneurial and growing company).

But then Benotto asked Messina to examine notes she had taken of a meeting she had with Gottlieb on April 25, 1998 a day after former Livent controller Chris Craib had told her of a meeting where Drabinsky, Craib and Eckstein had allegedly openly talked about improperly slashing about $20 million in expenses from the first quarter financial results. In the notes, Messina recalled telling Gottlieb to reconsider those alleged manipulations especially since the independent accounting firm of KPMG was poised start a due diligence investigation of Livents financials as part of an investment deal with former Hollywood super-agent Micheal Ovitz. In the notes, Messina says she told Gottlieb: I dont care if Im let go if they want somebody else as CFO or because they are moving the head office to New York but I will not be let go for fraudulent misrepresentations.

Fraudulent misrepresentations. Is that the first time you used that phrase with Myron Gottlieb, the judge asked.

Yes, I think it was, replied Messina.

Did you ever use that word with Garth Drabinsky? the judge asked.

No, I dont think I did.

The exchange could be important since prosecutors need to prove not only that a fraud occurred at Livent, but that Drabinsky and Gottlieb knew about the fraud and were active participants in it. Is it conceivable that the defence could convince the judge that Drabinsky and Gottlieb knew about the financial manipulations, yet did not honestly believe they were fraudulent?

Greenspan seemed to be trying to make that point when he grilled Messina about notes she made about the phone call the CFO received from Chris Craib the day before that meeting with Gottlieb.

The notes include several examples of alleged manipulations that were discussed by Drabinsky, Gottlieb and Gordon Eckstein. Those included improperly increasing sponsorship revenue by $750,000; eliminating $1 million from the profit and loss statement and capitalizing $5.7 million to fixed assets.

In Messinas notes regarding that $5.7 million alleged manipulation, she started to write the words very aggressive before crossing them out. I suggest to you those adjustments were aggressive, not fraudulent, Greenspan said.

Absolutely not, Messina replied. I can assure you it was fraudulent.

But the defence was soon back to alleging that Messina had simply made up key points about her testimony. After all, defence lawyers have suggested to both Messina and Eckstein they are lying about that meeting to allegedly manipulate Livents first quarter financials and no such meeting ever took place. Inconsistencies in Messinas story show that her testimony is made up, Greenspan suggested.

In Messinas notes of that Sat. April 25 meeting, Messina described how Gottlieb called her at home and asked her to come into the office to give him an accounting schedule. Messina, who was preparing her taxes at the time, came into the office and went to Gottliebs office. I was nervous because I wanted to speak to him about the Q1 results and the due diligence of KPMG [related to the pending investment by former Hollywood mogul Michael Ovitz], Messina recalls in the notes.

However in her testimony Messina said she never spoke to Gottlieb about the due diligence. You didnt say a word about the due diligence, you only spoke about this supposed meeting the previous day, said Greenspan.

Sir, they were related. There was a fraud and the results were being manipulated and now KPMG was coming in, Messina replied. “My whole concern was the ongoing perpetration of a massive fraud.

Her notes go on: I took a deep breath and said: ‘Myron, have you and Garth really thought about whats being contemplated and the ultimate impactwhats going to happen at the end of Q2 when they find out what the results are really like.

Gottlieb was not responsive, which indicated he didnt know what Messina was talking about, Greenspan suggested.

He never said, Maria what are you talking about because he had already talked to Garth, to which Greenspan suggested that was pure speculation.

At that meeting, Gottlieb gave Messina a list of financial data KPMG required as part of their due diligence investigation for Ovitz. Most of the responsibility for gathering that data fell to Messina, but Gottlieb did not instruct Messina to obstruct or hinder KPMG in their investigation of the company, Greenspan said not exactly the behavior of somebody engaged in a high-level fraud.

It was just like the audits every year, Messina replied before being cut off.

He did not say anything to you about keeping information away from KPMG! said Greenspan. You were free to do what you wanted to as CFO. He does not give you any instructions to suppress a single word, not a single document.

Yes sir, Messina replied.

Messina continued to insist Gottlieb and Drabinsky reconsider their plan to allegedly manipulate the company financials, according to the notes. Its at this point Messina made the comment about fraudulent misrepresentations that so interested the judge. The notes continued. Myron said I will not be let go. He and Garth have never lied to me and they would protect me.

However, in her testimony at the trial and at the preliminary hearing, Messina also said Gottlieb assured her the alleged manipulations were just income smoothing and that everyone does it. However, those words appear nowhere in her notes about the meeting, Greenspan pointed out. Every time you talk about this discussion you mislead people, Greenspan charged.

Messina said he may or may not have used the words income smoothing at that meeting, although he did in meetings shortly afterwards. He said it in the same time period, Messina said. He said what he said.”

The lack of a satisfactory response from Gottlieb prompted her to write a memo to Gottlieb, Drabinsky and company lawyer Gerald Banks stating she would not support the allegedly manipulated first quarter financial statements. But Messina has told different stories about meetings she had with Gottlieb after circulating that memo, insisted Greenspan.

In her testimony to prosecutors, Messina said Gottlieb called her about the memo and told her he didnt know what she was talking about because she had not attached any financial statements to the memo. Messina testified she told Gottlieb You know what Im talking about. When Gottlieb insisted he did not, Messina responded: Fine, if you want to play that game, Ill give you the financial statements, and instructed Chris Craib to give Gottlieb most recent accounting schedules.

However, shortly after disclosing the fraud in Aug. 1998 she told a slightly different story to Livent managers and lawyers from Stikeman Elliot, Greenspan said. The general details are the same, except in that first interview she says Gottlieb phoned her and asked her to come up to his office. In that account, Messina makes the “Fine, if you want to play that game” comment face-to-face with Gottlieb, rather than over the phone.

I suggest to you that you never said you know what Im talking about, and you never said fine, you want to play that game, Greenspan said.

Messina said she misspoke when describing the meeting to Livent managers. The interview was extremely stressful since occurred less than 24 hours after she first disclosed her knowledge of the alleged fraud. Im surprised I remember anything, she said.

Allegations that Drabinsky and Gottlieb were planning to manipulate the first quarter 1998 financials are preposterous, said Greenspan since the Ovitz group was going to be intimately involved in the company and was overseeing those financial statements. I suggest to you from the moment Ovitz was involved in this deal, Mr. Ovitz not only insisted that [he] had the right to review the financials, they were intimately involved with the first quarter, Greenspan said.

No, I only knew what Mr. Gottlieb told me, Messina replied.

Did you discuss that with him? Did you say: Myron how can you conceivably allow them to be involved??

I discussed it with him before, said Messina. I had taken the position that it was going to be enough to stop the fraudobviously it was not.

Greenspan also pointed out Messina has been changing the words she uses to describe the alleged fraud at Livent. In an interview she gave to the Institute of Chartered Accountants of Ontario in 1999, she said she could not support the decisions of management regarding the quarterly financials. At the preliminary hearing, she said she could not support the adjustments to the financials and in her testimony at trial she said she could not support the financial manipulations.”

I have not changed the word, Messina replied. The adjustments were manipulations.

She reiterated her answer during a brief re-examination from prosecutors. Prosecutors also asked Messina about the numerous outside accounting opinions Livent senior managers sought regarding a dispute with Deloitte & Touche over how to account for income from a naming rights deal. When asked if either Gottlieb or Drabinsky had ever sought an outside opinion regarding the Livents alleged practice of pushing expenses into future periods or improperly transferring costs between disparate shows, Messina replied No sir, they did not.

The trial continues on Monday with testimony from former Livent controller Grant Malcolm.