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Livent’s truth vs. ‘Nuremberg Defence’

Livent’s former senior accountant denied telling employees at the doomed theatre company that if the widespread fraud at the company was ever uncovered, he would merely invoke the “Nuremberg defence,” and claim he was merely following orders, an Ontario Court heard today.

Sparks flew on the second day of tense cross examination as Edward Greenspan — the lawyer representing Garth Drabinsky — confronted Eckstein with the preliminary hearing testimony of former Livent controller Tony Fiorino who told the court in 2005: “I am going to use the Nuremberg defence: They made me do it. I have a wife and a child and a mortgage.”

Eckstein denied saying the remarks and countered that he was telling the truth — that he had been instructed by Livent founders Garth Drabinsky and Myron Gottlieb to bury the company’s mounting losses. But Greenspan persisted and accused Eckstein of being the man behind the alleged fraud at the company who planned all along to blame the company’s senior executives. “No, I was always going to tell the truth,” Eckstein testified. “And the documents will back me up.”

Both Drabinsky and Gottlieb have pleaded not guilty to two counts of fraud and one count of forgery in connection with the fraud and maintained that others at were responsible for the alleged accounting fraud at the theatre company.

Eckstein blamed Drabinsky and Gottlieb as a means of securing a preferential plea bargain from U.S. authorities, Greenspan told the court. “The U.S. was so eager to blame Mr. Drabinsky and Mr. Gottlieb that when you said `I was following orders,` you got your deal.”

In December, 1998 Eckstein pled guilty to one count of conspiracy to commit securities fraud in the U.S. A month later, in January, Eckstein pled guilty to civil charges brought by the U.S. Securities and Exchange Commission. That was a mere five months after Drabinsky and Gottlieb were ousted from their positions at Livent after the alleged accounting fraud was uncovered by new management brought in after the sale of a controlling stake in the company to former Hollywood super-agent Michael Ovitz.

Eckstein has yet to be sentenced in the U.S. case, but he could face a jail sentence of up to five years, and a fine of US$250,000 or twice the amount of any illicit gains or shareholder losses. However, Eckstein acknowledged that neither he, nor his lawyers, has been in touch with U.S. authorities in quite some time to deal with the U.S. sentencing.

Eckstein’s defence that he was merely following orders was not as persuasive to the Institute of Chartered Accountants of Ontario, which rejected his efforts to reduce the fine imposed on the accountant on the grounds that Gottlieb and Drabinsky were ultimately in charge of the company’s books, Greenspan told the court. Eckstein was stripped of his chartered accountants designation after pleading guilty to charges of professional misconduct before the ICAO in 2000.

Greenspan acted incredulous when Eckstein finally told him he “took exception” with his repeated us of the “Nuremberg Defence” phrase. “Why, I thought you defined the `Nuremberg defence` as merely following orders — isn’t that what you did?” Greenspan said.

(Here’s a hint as to why someone might find it offensive. Ask yourself, who used the Nuremberg Defence? Could it be… the Nazis?)

Last February — more than eight years after settling the charges in the US and six years after Canadian criminal charges were laid — Eckstein pled guilty to a single count of fraud and received a conditional sentence. Under the terms of that sentence, Eckstein serves no jail time, but can only leave his Scarborough home to go to work and for a limited number of approved activities. He must also be home between the hours of 7 pm and 7 am — a restriction that expired yesterday, Greenspan noted.

When Greenspan tried to grill Eckstein about why it took him so long to settle the charges in Canada, Eckstein told the court he was merely following the advice of his lawyer. When Greenspan attempted to force him to elaborate on his answer, Eckstein invoked lawyer-client privilege and refused to answer.

Greenspan promised to revisit the issue of privilege today and warned Eckstein that he may want to have his lawyer handy during his cross examination.