Indicted for conspiracy and securities fraud

TORONTO — Pointing fingers, former theater impresario Garth Drabinsky has filed a motion with an Ontario court that attempts to spread blame for Livent’s horrendous accounting irregularities on Michael Ovitz, former Livent exec Robert Webster and the accounting firm Deloitte and Touche.

Newest motion, filed March 23 by Drabinsky and Livent co-founder Myron Gottlieb at the Ontario Superior Court of Justice in Toronto, adds Ovitz, Webster and Deloitte and Touche to a third-party action that Drabinsky filed in 1999. It claims that that Ovitz and Webster knew about problems with Livent’s financial operations earlier than they said they did, and that they orchestrated events to use Drabinsky as a scapegoat.

The action also accuses auditors Deloitte and Touche of failing to follow up or inform Livent’s board about red flags that allegedly came out in previous audits and inflating the sum of alleged accounting irregularities in their reissue of Livent’s financial restatements in November 1998.

The publicly traded theater concern went bankrupt under Drabinsky’s helm back in 1999, and Drabinsky was subsequently indicted for conspiracy and securities fraud by a federal court, where U.S. attorneys described a Drabinsky-orchestrated accounting fraud as a “massive” and “brazen” scheme to conceal “tens of millions of dollars” in losses at the theater concern.

If their names are added to the third party action, it could mean that Ovitz, Webster and Deloitte and Touche will have to take some responsibility for damages against Livent.

It would also mean that Livent would, in effect, be suing itself.

Neither Livent’s lawyer, Peter Howard of Stikeman Elliott of Toronto; Ovitz’s lawyer, George Garvey of Munger Tolles & Olson; nor Drabinsky’s counsel, David Roebuck of Roebuck, Garbig in Toronto would comment on the filing.

In August 1998, Drabinsky and Gottlieb were suspended and later fired for alleged accounting irregularities to the tune of $63.5 million.

Livent then went into receivership. Charges, lawsuits and countersuits have been flowing freely every since, with enough evidence scattered around Canuck and U.S. courts and lawyers’ offices to fill hundreds of banker’s boxes.

There are also civil changes pending against Drabinsky and Gottlieb from both Livent and the U.S. Securities and Exchange Commission; the Royal Canadian Mounted Police is investigating the matter for possible criminal charges; and Drabinsky and Gottlieb are under criminal indictment on 16 counts of conspiracy and fraud, by the U.S. Attorney’s Office in the Southern District of Manhattan.

Last July, a conflict-of-interest suit Drabinsky filed in 1998 against the accounting firm KPMG for an undisclosed sum was settled. Under the terms of the settlement, KPMG acknowledged that it had breached its fiduciary duty to Drabinsky in agreeing to investigate the financial affairs of Livent, which Drabinsky co-founded. Previously, KPMG had performed due diligence into Livent before Ovitz bought into the company in July 1998. In addition, the company had been Drabinsky’s personal accountant for more than two decades.

Drabinsky and Gottlieb, who declined to go to the U.S. to face federal charges, have launched a number of their own actions, including conspiracy actions against Ovitz and Roy Furman (who joined the company as CEO in 1998 with Ovitz).

Drabinsky, who was not available for comment, is employed by various entities, including as an adviser in marketing, public relations and promotion for the National Post, a Canuck national daily newspaper owned in part by media mogul Conrad Black, a strong supporter of Drabinsky.

“It looks to Michael Ovitz like an attempt to blame the victim,” said George Garvey, Ovitz’s attorney in the proceedings and a partner at Munger Tolles & Olson.

(Claude Brodesser in Los Angeles contributed to this report.)

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