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Livent Manipulations Made Controller “Physically Ill”

If they ever make a movie about the alleged fraud that destroyed Livent they may cast Kevin Spacey to play the role of Chris Craib, the former controller at Livent who testified today at the criminal fraud trial of Garth Drabinsky and Myron Gottlieb.
Craib, with his oval face, intense eyes and slightly receding hairline, bears a striking resemblance to the Oscar-winning actor. But the question prosecutors and defence lawyers may be asking is: which Spacey character comes to mind for Madam Justice Mary Lou Benotto the judge overseeing the case when she listens to the chartered accountants testimony.
Prosecutors perhaps hope that Craib reminds Benotto of Detective Jack Vincennes the Los Angeles detective from L.A. Confidentialwho finally stands up and fights the corruption he finds all around him (Well just forget that Spacey winds up Spoiler Alert shot dead at the end of that movie.)
The defence, on the other hand, may be hoping that the judge thinks more along the lines of Verbal Kimt, the talkative criminal from The Usual Suspectswho invents a fanciful yarn about Keyser Soze, the vicious and (Another Spoiler Alert) ultimately imaginary criminal mastermind, in order to save his own skin from the police.
According to Craibs testimony the alleged masterminds of the alleged fraud at Livent were not imaginary at all they were Garth Drabinsky and Myron Gottlieb.
Craibs official job title at Livent was Senior Controller/Corporate Budgeting. That means he was in charge of overseeing the companys budgets and financial forecasts. Craib attended dozens of meetings with Livents managers regarding forecasts and budgets and testified that Drabinsky, Gottlieb and former Livent Chief Operating Officer Robert Topol, all had intimate knowledge of the inner workings of the company.
Sometimes it was hard for me to keep up, he told the court.
However, Craib had another job as well: creating the quarterly and year-end executive summaries of the companys financial performance. The summaries were distributed to Livents senior managers and showed tens of millions of dollars in expenses being kept off the theatre companys books or being improperly buried in the companys fixed assets. Prosecutors have already introduced copies of those summaries with what they allege is Drabinskys handwriting directing alleged manipulations.
Craib also testified that he once brought those summaries to a meeting and watched as Drabinsky allegedly discussed how to manipulate the companys financial statements.
It was during preparation of those executive financial summaries that he first learned about the alleged fraud at Livent, he told the court. While preparing the summaries for the second quarter of 1997, Craib noticed that the companys reported financial performance improved significantly from one version of the report to the next.
The company’s initial version was reporting a very significant loss approximately $20-million and in the later iteration, the expenses had been reduced and the company was showing a profit of between $3-$4 million, he testified.
When Craib confronted his boss Gordon Eckstein, Livents former senior vice-president of finance and administration, and asked him why there was such a huge difference, Eckstein mentioned something about income smoothing and replied: Welcome to the real world,’ Craib told the court. He was just very nonchalant.
For the next three quarters Craib saw the same pattern with the executive summaries. The financial results would start out with massive losses and improve with each new version until the company finally reported a profit.
The summaries clearly showed the companys actual and mounting losses and detailed adjustments such as the now infamous expense roll and amortization roll that represented tens of millions of dollars in alleged manipulations to Livents financial statements.
The summaries were produced at the end of every quarter as well as at the companys year-end, and distributed to Drabinsky, Gottlieb and Topol.
When Craib began producing the statements he referred to the alleged manipulations as carry forward on the reports. However, Craib changed that term to roll, a term Craib said was more reflective of what was really happening at the company. I was concerned that the wording used in the second quarter wasn’t as exact [so as] to tell exactly what was happening here, so I changed it to be more reflective, he said.
How is the term roll more reflective? Crown prosecutor Alex Hrybinsky asked.
It was the term management used, Craib replied.
Craib testified that he did not attend any executive meetings where the alleged manipulations were discussed in 1997. However, in late Oct. 1997, he delivered copies of the executive summaries to Drabinskys office just as a meeting with Eckstein was about to take place. After placing the summaries on Drabinskys desk, Drabinsky told him to leave. Before he left the office he heard Drabinsky ask Eckstein: What does he know about this? Craib told the court.
Mr. Eckstein responded, and I can only paraphrase, Do you think I’m the only person who knows down there?’
The term down there was a reference to the finance department one floor below, Craib said.
Later in Feb. 1998, Craib asked Eckstein straight out: Is this a fraud? he said.
[Eckstein] told me to shut the fuck up, youre not paid to think,’ Craib told the court today.
But Craib was paid to keep track of Livents real financial performance as well as the allegedly fraudulent financial figures the company reported to investors and regulators. As part of that, Craib testified that he helped Eckstein prepare a report that detailed some $22 million in alleged manipulations to the companys quarterly financials.
Sometime in Feb. 1998, Craib attended a meeting with Drabinsky and Eckstein in which that report was discussed, he told the court. The meeting took place in Drabinskys office and for some reason a fight broke out between the two men. They were yelling at each other and Gord said I told you this, and referred to the document, he said referring to the report detailing the $22 million in alleged manipulations. Mr. Drabinsky pulled the document out of his briefcase.
But Craibs most damaging – and what is sure to be his most controversial – testimony regarded a management meeting he attended on Friday April 24, 1998. Its a meeting defence lawyers contend never took place.
Craib testified that he and Eckstein met with Drabinsky late in the afternoon of April 24 with a copy of the executive summary that Craib had produced the previous day. In the first half of the meeting Drabinsky and Eckstein went through the summary in great detail, occasionally asking Craib questions about the report. Mr. Drabinsky and Mr. Eckstein went through the executive summary in a detailed basis, page-by-page, looking at the results, he said.
Then the mood of the meeting turned, and Drabinsky and Eckstein began talking about changes and alterations to the companys financial results.
“They were making changes that were completely arbitrary, Craib told the court. They were just pulling numbers out of a hat. Round numbers.
After the meeting, Craib said that he was sickened by what he saw. I was in utter shock. I dry-heaved because I finally understood what was occurring in front of me, he told the court. I was terrorized by it. I was almost physically ill.
Craib made notes of what was discussed at the meeting notes that were presented in court. According to the three pages of notes, Eckstein and Drabinsky allegedly discussed adjustments such as arbitrarily adding $100,000 to Livents merchandising revenue and adding another $50,000 to concession revenue.
The handwritten notes are dated Friday April 23rd not the 24th when Craib testified the meeting took place. I simply had the wrong date in my head, Craib testified. I wrote the right day but erroneously wrote the wrong date. It may be a simple error, but defence lawyers will likely question Craib extensively about the error.
Later that night, Craib called Maria Messina, Livents former chief financial officer, and said They are doing it again, he told the court.
Craib had known Messina before joining Livent. Like Messina, Craib had worked as an auditor on Livents books while working for Deloitte & Touche.
Defence lawyers have suggested that Drabinsky could not have attended the meeting. He was in New York and Washington that week and Livents corporate jet landed late Friday afternoon too late for Drabinsky to have attended the meeting.
The meeting is also important not only because it is an instance of Craib allegedly witnessing Drabinsky direct the manipulations to Livents financial statements, but also because that specific meeting is the catalyst for a series of other events. Messina testified that Craibs disclosure of the manipulations discussed at the meeting prompted her to reveal the alleged fraud to her lawyer Les Witlin (although she also testified that she did not tell the lawyer about her participation in the fraud). Witlin, in turn, told her to detail her opposition to the manipulations in a memo.
A week later, on May 3rd, Messina did write the memo, Craib testified. It was a Sunday and Messina came into Craibs office, trembling and obviously in physical distress. She handed Craib some handwritten notes and asked him to type a memo to Drabinsky and Gottlieb urging them to reconsider the manipulations to the companys financial statements.
She could not type it herself, Craib told the court. Her hands were trembling that much.
The memo appeared to have the desired effect and a short time after the alleged manipulations appeared to stop, Craib testified, and Messina went about attempting to properly record the companys expenses.
The fateful April 24th meeting was not the only time Craib kept notes of what managers said during meetings. Just a day after Messina wrote her memo to Drabinsky and Gottlieb, Craib attended a meeting with Eckstein and Livent controllers Grant Malcolm and Diane Winkfein.
At the meeting Eckstein said: I have to keep all the lies straight. I have to know what lies Im telling these people, I have told so many lies to these people I have to make sure they all make sense. Prosecutors did not ask Craib to explain the context of the remark or whom Eckstein was referring to when he said these people.
When Hrybinsky asked Craib why he did not blow the whistle on the fraud or merely leave the company, the accountant replied: I had initially tried to block it out, or tried to view myself as not being a participant in what was occurring, or that I was not responsible for what was occurring it was far above my head.
Craib is expected to finish his testimony tomorrow. Then he will face questions from defence lawyers.