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Livent courtoom drama begins

After nearly 10 years of investigations, delays and courtroom-wrangling the criminal fraud trial of Garth Drabinsky and Myron Gottlieb, his longtime business partner, finally got underway today in a Toronto courtroom. Both men pleaded not guilty to two counts of fraud and one count of issuing false documents in what prosecutors allege was a massive accounting fraud at Livent Inc. — the theatre production company responsible for such musical spectacles as Showboat, Ragtimeand Phantom of the Opera.

In an opening statement, lead prosecutor Robert Hubbard accused the Livent founders of bilking investors out of hundreds of millions of dollars using a variety of schemes that ultimately made Livent’s books as much a work of fiction as the plays the pair were staging in Toronto, New York and Chicago. “The accused directed and participated in a large scale accounting fraud,” Hubbard told the court.

In a detailed-packed 90-minute presentation, Hubbard laid out the prosecutors’ case for Superior Court Justice Mary Lou Benotto. Since Drabinsky and Gottlieb have opted to have the case heard without a jury, it is Benotto who will ultimately decide the guilt or innocence of the two men. The pair allegedly shifted expenses between shows, inflated ticket sales, convinced suppliers to submit false invoices and even arbitrarily moved expenses off the books in an effort to make the company look more profitable, prosecutors charge.

The fraud became so complex that Livent allegedly had to keep two sets of books. One set was seen only by senior managers and tracked the company’s real financial performance. The other, much rosier set of financial figures, were shown to company auditors, directors, investors and regulators. “They knew that the financial statements and documents presented to the public were materially false and misleading,” Hubbard said.

And while Drabinsky and Gottlieb have a well-earned reputation for staging creative productions, it appears that the prosecution may not be above a little showmanship of its own. During his opening statement, Hubbard used computers and large flat-screen television monitors in the court to highlight company memos, financial statements and other internal company documents to illustrate his accusations. Some of the documents have what appear to be incriminating notes scrawled in the margins in what prosecutors allege are the accused mens own handwriting.

In the coming months prosecutors say they will call seven former Livent accounting officials who will testify that Gottlieb and Drabinsky not only knew about the widespread accounting fraud at the company, but were ultimately responsible for that alleged fraud. Most of the accountants have already pled guilty to professional, regulatory or criminal charges in either Canada or the U.S. Prosecutors also plan to call some of the Livent suppliers who they accuse of submitting false invoices that allowed the Livent to complete its alleged financial manipulations.

And while investors have had to wait nearly a decade to hear the case against Drabinsky and Gottlieb, they will now have to wait a little while longer. The case has been adjourned until next week when prosecutors will call their first witness. In the meantime, check back soon as Canadian Businesswill be taking a deeper look at the prosecutors case and what to expect at the trial in the coming months.