Livent co-founders Drabinsky, Gottlieb convicted of fraud and forgery

Garth Drabinsky and Myron Gottlieb have been found guilty on fraud and forgery charges, with an Ontario judge saying they "systemically manipulated the books" at their now-defunct theatrical production company Livent Inc.

In one of Canada's most prominent fraud cases, Justice MaryLou Benotto of Ontario Superior Court in Toronto ruled Wednesday thatDrabinsky and Gottlieb were guiltyof fraud and forgery intheir running of Livent Inc.in the mid-1990s.

Prosecutors had maintained that Drabinsky and Gottlieb directed ascheme to make the ailing company look healthy, bilking investors of approximately $500 million.

Benotto said Wednesdaythe two men created "spectacular" successes on the stage, productions which brought Toronto, the company's home base, kudos from the worldwide theatre community.

But, the judge said,those successes were built upon a platform of falsehoods andmanipulation as Gottlieb and Drabinsky artificiallyinflated the company's profits and depressed its costs to make Livent's financial situation appear rosier than it was.

After the verdict, Drabinsky and Gottlieb left the Toronto courtroom without comment.

The maximum possible penalty on a fraud convictionis 10 years in jail, while it's 14 years for a forgery conviction.

Spectacular rise and fall

The debate in the trial was not around whether Livent's books were cooked, butabout who was the chef.

Liventrose to prominence in the 1990s by producing a string of hits in Canada and on Broadway including Kiss of the Spider Woman, The Phantom of the Opera and a revival of Show Boat.

Drabinsky became one of the leading lights in the Canadian and Americanentertainment sector, eventually garneringan Order of Canada for his efforts.

Livent's steepupward trajectory, however,was matched by an equally impressive fall when, in 1998,the firm was soldto a group of American investors, led byHollywood heavyweight Michael Ovitz.

Ovitz's group quickly discovered that Livent'sbalancestatements had as much substance as one of the company's stage settings and thatthe firm was in serious financial trouble.

Within four months, Livent was bankrupt and New York authorities began pursuing Drabinsky and Gottlieb on fraud charges.

Ontario officials eventually startedtheir own inquiries into Livent, leading to fraud charges against the two men and a court case that began in May 2008.

Defence defeat

The defence for the two men had maintained that the fraud was led by lower-level employees, including senior vice-president of finance Gordon Eckstein, alleging they manipulated Livent's financial statements without the knowledge of either Drabinsky or Gottlieb.

But the judge did not agree with this argument, deciding instead to believe the prosecution.

Drabinsky and Gottlieb also face a 1998 fraud indictmentin New York and 2001 charges filed by the Ontario Securities Commission.