Legit duo's fraud case begins in Toronto

Most musicals have a book, but according to prosecutors in Ontario Superior Court, Garth Drabinsky’s Livent had two: one that the now-defunct legit company showed to investors and one that told the truth.

Nearly 10 years after Drabinsky and his partner Myron Gottlieb were relieved of their duties at the producing company because of alleged “financial irregularities,” the case finally came to trial in Toronto this week.

The chief execs behind Livent — once North America’s largest producer of live theater — were arrested in 2002 after a four-year probe by the Royal Canadian Mounted Police. Back in 2002, the government was prepared to file 19 counts against the pair, but over the years, many of the charges were dropped or consolidated.

Drabinsky and Gottlieb now face three charges: criminal fraud with regard to Livent’s original public offering; accounting fraud concerning documentation of the org’s operations; and forging documents, in the case of dozens of financial statements and other regulatory filings that the two men allegedly knew were filled with false information.

Facing a maximum penalty of 14 years, Drabinsky, 58, and Gottlieb, 64, pleaded not guilty to all charges Monday.

Crown Attorney Robert Hubbard, heading the case for the government of Ontario, charged Monday that Drabinsky and Gottlieb “directed and participated in a large-scale accounting fraud that lasted over five years.” Hubbard claimed they raised over C$500 million ($499 million) in the process.

Hubbard insists that every quarterly report from the time the company went public in 1993 was fraudulent, moving overall corporate expenses from one quarter to another, as well as transferring operating costs between shows to make individual productions seem more successful than they were.

The Canadian productions and North American tours cited in the case include “The Phantom of the Opera,” “Ragtime,” “Joseph and the Amazing Technicolor Dreamcoat,” “Sunset Blvd.,” “Show Boat,” “Kiss of the Spider Woman” and “Fosse.” The latter three won Tonys on Broadway.

According to Hubbard, the duo enlisted the support of seven company members and numerous outside suppliers, as well as installing special accounting software designed to misinform auditors.

By making Livent seem more successful than it was, Hubbard claims Drabinsky and Gottlieb were able to raise a $50 million line of credit from the Canadian Imperial Bank of Commerce, $43 million from U.S. investors and $50 million from the Toronto Stock Exchange.

Hubbard also maintains that MyGar Holdings, a private company run by Drabinsky and Gottlieb prior to Livent, was a major beneficiary of the financial manipulations, with many millions of dollars going directly into Drabinsky’s and Gottlieb’s pockets.

After Monday’s opening statements, the trial adjourned for a week. When it resumes, the first witness called is expected to be Peter Kofman, an engineer who allegedly used $1.7 million of his own money to buy tickets for “Ragtime” to inflate the show’s revenue figure before being “reimbursed” through false invoices from Livent for work he did not perform.

Drabinsky and Gottlieb were also indicted in 1999 by a federal grand jury for the Southern District of New York on 16 charges of conspiracy and fraud, but U.S. proceedings are deferred until the completion of the trial in Toronto, which is expected to last into the fall.

(Jennie Punter in Toronto contributed to this report.)

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