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The “asleep at the switch” defence

To the outside world Myron Gottlieb was the business brains of Livent who steered the company’s financial course while his partner, Garth Drabinsky, wielded his creative genius in staging fabulous musical theatre productions like Phantom of the Opera, Showboatand Ragtime. In reality, Gottlieb was a simple businessman who understood little about the complex accounting employed by the theatre company, knew little about the day-to-day operations of the company, was not copied on key company documents and frequently fell asleep during meetings, argued Gottlieb’s lawyer Brian Greenspan in an Ontario court today Tuesday.

Greenspan made the comments during his first day of cross-examination of Gordon Eckstein, Livent’s former senior vice president of finance and administration. Eckstein has been on the stand for the past three weeks painstakingly recounting how he — at Gottlieb and Drabinsky’s insistence — cooked Livent’s books to bury the company’s mounting losses and make it appear profitable.

Gottlieb would often fall asleep during meetings, Greenspan suggested. “He was notorious around Livent that half the time that Mr. Gottlieb would be in a meeting, he’d be asleep.” Eckstein testified that was an “exaggeration” but conceded there were times when Gottlieb appeared to fall asleep during meetings.

Gottlieb had only a “macro” understanding of the company’s operations, insisted Greenspan. And when issues of accounting or finance came up, it was his practice to seek outside opinions for the best ways to deal with them, Greenspan suggested.

Eckstein disagreed with Greenspan’s portrait of Gottlieb as a hapless member of Livent’s senior management team. While Gottlieb did not have detailed day-to-day knowledge of the intricate workings of the company’s theatre productions, he did indeed have a sophisticated knowledge of accounting, understood the company’s affairs and was an active participant at Livent’s quarterly financial meetings where the myriad of alleged accounting manipulations were discussed. “I had daily interactions with Mr. Gottlieb” Eckstein testified. “He had far more understanding than just at a macro level.”

Greenspan showed numerous key company documents in which more than a dozen Livent executives received copies, but Gottlieb was not included in the circulation list. As well, he introduced a memo from former company chief operating officer Robert Topol and copied to Eckstein asking for answers to questions posed from a financial analyst who covered Livent’s stock. Despite the fact that keeping contact with stock analysts was part of Gottlieb’s job description, he was not asked for input on the questions, Greenspan pointed out. “He could have answered some of those questions,” Eckstein replied.

Greenspan also cited testimony from former Livent controller Tony Fiorino who told investigators that he had never received any direct accounting instructions from Drabinsky or Gottlieb and said neither men could book an accounting entry “if their lives depended on it.”

Greenspan confronted Eckstein with comments made by Fiorino to investigators in which he said that Eckstein said he was the real “financial brains of the company,” and acted as if he was “omnipotent and untouchable.” Eckstein often shut down any discussion about how to properly account for items, telling Fiorino: “don’t think, just fucking do it.”

Eckstein denied ever saying he was the real brains of the company, but agreed he did often shut down debates about the accounting treatment of items. “As the fraud got larger and larger, discussion as to how to deal with some of these things became less significant,” he testified. “Discussion about how to do accounting became a moot point.”

Eckstein’s character continued to come under attack from Greenspan as he cited testimony from other Livent employees who described Eckstein as abusive to staff and often told staff that it was only because of “his financial genius” that the company remained afloat. He also often referred to Drabinsky and Gottlieb as “fuckheads, shitheads or idiots.” Eckstein replied that he didn’t recall using those words and only denigrated senior Livent managers in connection to the fraud. “Anybody could have done what I did. There wasn’t any financial genius to it,” Eckstein testified. “I was just relating what management wanted to the (accounting) staff. Anybody could have committed the fraud I did — any accountant.”

His abusive behavior came from increasing frustration over the fraud and with the company’s fragile financial situation where an increasing amount of money was being spent on private airplanes, corporate apartments and company cars, Eckstein insisted. “It was a mess and I knew it was going to explode,” he testified.