TORONTO — Former investors are celebrating a New York federal court ruling that embattled former theater impresario Garth Drabinsky and partner Myron Gottlieb must pay them $23.3 million in damages after theater company Livent went bankrupt.
The question is, will they ever see that money?
The ruling, issued by Judge Victor Marrero on Feb. 4, was disclosed to noteholders’ lawyers Tuesday.
The civil case was filed in a federal court in Lower Manhattan in late 1998. It relates to a 1997 bond offering of $125 million, whose value fell sharply with accusations of large-scale book-cooking at the company. Livent’s very public collapse began after Michael Ovitz bought 20% of the Toronto-based company for $20 million in 1998.
Also named in the original suit were Livent’s former auditors, Deloitte & Touche, the Canadian Imperial Bank of Commerce and a handful of employees and outside directors, including former VP finance Gordon Eckstein and chief financial officer Maria Messina.
According to prosecuting attorney Murielle Steven Walsh of Pomerantz, Haudek, Block, Grossman and Gross of New York, plaintiffs have already settled with the other defendants, and a collective sum of $17.25 million in damages has been distributed to investors.
“Drabinsky and Gottlieb were the last defendants still standing,” Walsh said. “I guess you could call them the holdouts.”
Drabinsky and Gottlieb remain in Canada, as they have done for the entire 6½ years the case has been in the U.S. courts. Until a few months ago they invoked their Fifth Amendment right to refuse to answer the allegations or offer a defense.
“Every indication on the substantial record before the court suggests that Drabinsky and Gottlieb had strong reasons to believe that their truthful answers to questions concerning Livent’s accounting fraud would be incriminating,” Judge Marrero wrote in his decision.
More recently the pair asserted they could not be held liable for the damages because they could not have discovered the fraud. The court rejected the argument.
If they were to enter the U.S., the pair would find themselves in more hot water. They also have 16 outstanding fraud and insider trading charges, as well as a civil suit filed by the U.S. Securities and Exchange Commission in 1999.
In Toronto, a preliminary hearing to determine whether there’s enough evidence to move on to a criminal trial is expected to last until April. Details of the preliminary hearing in Toronto are subject to a news blackout.
There is also a complicated array of other civil cases outstanding, some of which are countersuits against various parties filed by Drabinsky and Gottlieb.
Investors in New York are counting the latest decision a significant victory, however.
“We just need to do some logistical maneuvers to get the judgement enforced by a Canadian court,” Walsh said.
She noted the case would not have to be argued again in Canada, since there exists an agreement for recognizing judgments from a foreign jurisdiction. “After that, it would be a matter of collection.”
Walsh said they have also been looking into Drabinsky and Gottlieb’s assets to determine whether they have the means to pay the settlement.
While Drabinsky’s lawyer Edward Greenspan did not return calls for comment, the two have been quoted as saying they intend to appeal the decision. They have 30 days to do so.