Blogs & Comment

Livent Fraud Called Technical Support

For the first time since the criminal fraud trial of Garth Drabinsky and Myron Gottlieb began in May, lawyers managed to complete the entire testimony and cross-examination of a witness in a single day. But even then, defence lawyers spent considerable time quizzing Raymond Cheong, Livents former manager of information technology, not about his testimony, but rather about his connections to lawyers employed by other Livent witnesses.
It took less than an hour for assistant crown prosecutor Amanda Rubaszek to elicit testimony from Cheong about how he made several modifications to the programming of Livents accounting software that enabled accountants at the theatre company to delete or move accounting entries without leaving an audit trail. Cheong told the court he made the first modifications to the companys Lawson accounting software shortly after he was hired in 1990. He made subsequent modifications in 1993 and again in late 1995 or 1996. Cheong was ordered to make the changes by Gordon Eckstein, Livents former senior vice president of finance and administration, as well as Diane Winkfein, and Grant Malcolm, both former Livent controllers.
The changes removed controls from the system that prevented transactions from being deleted or altered on the companys general ledger and accounts payable systems, Cheong said. The changes allowed Livent accounts to take a transaction that had been posted to a specific period and putting it back into a state where it can be posted again to another period or another account, Cheong told the court.
Those changes made it possible for Livent accountants to remove invoices from the companys accounting computers and move them to other accounts or to future time periods, thus making the company appear more profitable.
Cheong also made modifications to the software that allowed accountants to search for invoices that could be allegedly manipulated, as well as change the dates on numerous invoices with a single keystroke as opposed to going through each invoice and manually changing the dates, he testified.
Cheong was sometimes enlisted by Winkfein to help the accounting department make changes to accounting invoices. Winkfein made a point of telling him to do the changes in his office with the door closed, he testified.
Cheong was never given an explanation for why the changes were to be made, but said that he was uncomfortable making the alterations. It was definitely wrong. I thought it would be a one-time occurrence, he said. It became a nuisance because it became voluminous the number of requests that came every quarter.
During one audit in 1996, computer experts from Deloitte & Touche the accounting firm that audited Livents financial statements spent at least 28 hours evaluating the companys information systems, but failed to detect the changes, the court heard. Any inquiries from the auditors about changes were referred to Eckstein, Cheong said. A Deloitte report on Livents computer systems, however, noted the companys lack of data security and warned: The lack of sufficient logical security may result in unauthorized access to programs or data.
Livents auditors were not the only ones kept in the dark about the manipulations Cheong had made to the companys computer system. Cheong told the court he never discussed the changes with Maria Messina the companys former auditor who left Deloitte to become Livents chief financial officer and who ultimately who blew the whistle on the alleged fraud.
At one point during a lunch with accounting staff Cheong made a comment about the changes to the group, but Diane Winkfein glared at him. She gave me a look of disgust, Cheong told the court. She looked like she really didnt want to discuss it.
Cheong also testified he never discussed the alterations to the companys computer system with Garth Drabinsky or Myron Gottlieb.
Cheong described his time at Livent as bittersweet. He enjoyed working for the theatre company and being involved in the glamorous business and attending the opening night gala parties, but the work environment was very hard and often abusive, he said. The nature of peoples personalities like Gords were intimidating and abusive, he said. [Eckstein] swore at me, he called me an idiot and sometimes embarrassed me in front of vendors.
But Eckstein wasnt the only one with an abusive personality. When Livents computer systems went down, Cheong could find himself on the receiving end of an angry phone call from Drabinsky, he told the court.
Drabinskys outbursts were never personally aimed at Cheong, but were merely the result of a frustrated executive who could not get the reports he needed from the companys computer system, suggested defence lawyer Edward Greenspan.
Greenspan was more interested in quizzing Cheong about his dealings with Les Wittlin, the lawyer who Messina testified she hired in 1998 for advice on how to deal with the alleged fraud. Wittlan eventually represented Messina, and four other Livent accountants whose revelation of the alleged fraud at Livent prompted new company managers to suspend and ultimately terminate Drabinsky and Gottliebs employment. Did you have any idea that Mr. Wittlan before he became your lawyer acted for just about everybody? asked Greenspan.
Yes, I heard that, Cheong replied.
Do you understand the phrase conflict of interest? Greenspan asked.
Greenspan also asked if he knew that Wittlan had been kicked off the file, by the U.S. Securities and Exchange Commission because he was representing too many players in the Livent investigation. No, this is the first time Im hearing about that, Cheong replied.
The trial continues tomorrow as former Livent controller Grant Malcolm returns to the witness stand.