Drabinsky Charged | The Canadian Encyclopedia


Drabinsky Charged

Garth Drabinsky tucked his head down and drove forward into the crush of microphone-waving reporters at a Toronto hotel. When he finally reached the podium, he bit his lower lip and then launched into a dramatic rebuke of a series of U.S.

This article was originally published in Maclean's Magazine on January 25, 1999

Drabinsky Charged

Garth Drabinsky tucked his head down and drove forward into the crush of microphone-waving reporters at a Toronto hotel. When he finally reached the podium, he bit his lower lip and then launched into a dramatic rebuke of a series of U.S. criminal and civil charges that had just been laid against him. Drabinsky denied instructing the staff of theatre production company Livent Inc. to conduct illegal accounting practices. He slammed Livent's new owners and characterized the charges as "ill-conceived." On an intimate level, Canada's most high-profile theatre impresario said he is now living "a personal tragedy."

The co-ordinated moves of the U.S. authorities had been anticipated for weeks. Ever since Livent filed for bankruptcy protection in November, rumours of criminal charges against Drabinsky and Livent's co-founder, Myron Gottlieb, had floated around Toronto and New York City. On Jan. 13, the U.S. attorney for the southern district of New York indicted Drabinsky and Gottlieb on one count each of conspiracy and 15 counts each of securities fraud.

The indictment filed by the U.S. attorney accuses Drabinsky and Gottlieb of ordering Livent accounting staff to falsify financial statements and erase expenses. It goes on to accuse Livent's co-founders and their staff of manipulating Livent's financial statements in almost every quarter since 1995 in order to conceal "tens of millions of dollars of business losses." The U.S. attorney's office alleges that Drabinsky and Gottlieb once told their accounting staff to delete $23 million in expenses from Livent's ledger - which was more than 20 times Livent's reported net income.

If convicted, Drabinsky and Gottlieb each face up to 10 years in prison and up to $1 million (U.S.) in fines and $100 million in restitution. But charges are not restricted to Drabinsky and Gottlieb. Two past Livent officials, former senior vice-president of finance Gordon Eckstein and former chief financial officer Maria Messina, pleaded guilty three weeks ago to one count each of violating U.S. securities laws. Eckstein admitted to conspiring with Drabinsky and Gottlieb to commit fraud. Messina acknowledged making false statements about Livent's financial results. The Washington-based Securities and Exchange Commission also announced civil charges against nine former senior officials, including the Livent co-founders. The SEC accuses the nine of "engaging in a multifaceted and pervasive fraud spanning eight years from 1990 to 1998."

One of the allegations raised in the SEC report is that in 1998 Drabinsky instructed Eckstein to change a $23-million loss into a $2-million profit. After the meeting, according to testimony made to the SEC, Eckstein said: "I have to keep all the lies straight. I have to know what lies I'm telling these people [new management]. I've told so many lies to different people I have to make sure they all make sense." The SEC says that Drabinsky and Gottlieb "operated a kickback scheme with two Livent vendors designed to siphon millions directly into their own pockets," and cites a total of $7 million. The SEC also accused five former Livent officials (but not Drabinsky and Gottlieb) of insider trading.

Drabinsky stressed that neither the criminal nor civil charges against him have been proved - and presented himself as an innocent Canadian up against American might. "The financial resources of the U.S. government are arrayed against me," he said. "This precipitous and deliberate action has caused incalculable pain to me and was deliberately designed to damage my reputation and to inflict a heavy toll on my personal resources." Drabinsky accused Livent's new management of pressing the U.S. authorities to "take quick, ill-conceived action against us." SEC associate director Paul Gerlach says that while charges were swift, they followed an extensive and independent investigation.

The U.S. investigations began in August, shortly after Drabinsky relinquished control of Livent to a team of American executives led by Hollywood agent Michael Ovitz and New York investment banker Roy Furman. Livent's new management said it had discovered accounting irregularities and suspended Drabinsky and Gottlieb. In November, Livent filed for bankruptcy protection in both Canada and the United States. Livent filed a $225-million civil suit against Drabinsky and Gottlieb, who in turn launched a countersuit against the new executives.

Drabinsky and Gottlieb are now weighing the question of whether to fight extradition proceedings, which the U.S. attorney's office has promised to pursue vigorously. Edward Greenspan, Drabinsky's high-profile lawyer, says his client will decide whether to surrender by late January. Whether or not he agrees to go, Drabinsky showed no signs of backing down. "The final act of this tragedy has yet to be played out," Drabinsky told reporters with dramatic flourish. "And when it is, Myron Gottlieb and I have complete confidence that we will be vindicated."

Maclean's January 25, 1999