Livent Founders Guilty of Fraud and Forgery

Garth Drabinsky and Myron Gottlieb have been found guilty of fraud and forgery at Livent Inc

The pair co-founded the live theatre company, which at it's height had productions playing on Broadway, as well as in Toronto and Vancouver and other major cities across North America.

Snaring the exclusive Canadian rights for Andrew Lloyd Webber's The Phantom of the Opera, Drabinsky's company restored the historic Pantages Theatre in downtown Toronto (now known as the Canon Theatre) for a glittering opening night in September 1989. There were mixed reviews for the show itself, but high praise for the beautifully restored theatre.

Phantom was a cash cow for Livent throughout the 1990s, and Livent quickly brought in another Andrew Lloyd Webber musical, Joseph and the amazing Technicolor Dreamcoat for an extended run with Donny Osmond heading the cast.

But Livent's most crucial role came in developing new musicals for Broadway. Drabinsky was instrumental in reactivating the musical Kiss of the Spider Woman after a disastrous try-out in Purchase, NJ. The producer brought the creative team to Toronto and mounted a summer long run of a revised version of the show opening in June 1992.  After Toronto the musical moved to London, and finally arriving on Broadway in May 1993 where it won the Tony Award for Best Musical of the season.

A few months after that win, Livent opened a spectacular new production of the classic musical Show Boat at the then brand new North York Performing Arts Centre in Toronto. The show received sensational reviews and a year later opened on Broadway winning the 1995 Tony Award for Best Revival of a Musical.

Drabinsky followed the same procedure with Ragtime, which had its world premiere at the North York performing Arts Centre in December 1996.  

Livent began buying and refurbishing several theatres including the Oriental Theatre Chicago and entering into management deals with others including the Ford Centres, in Toronto, Vancouver and New York.

Although the company tried to maintain the public perception that all of their productions were doing well, insiders began questioning unusually high running costs that were leaving behind a growing pool of red ink. Kiss of the Spider Woman had run more than two years on Broadway but still closed with heavy financial losses, and although the Broadway production of Show Boat was financially successful, the decision to send out two full-scale tours proved financially unviable.

By 1997, the company was losing money (a loss of $44.1 million that year alone), and in June, 1998, shareholders approved a deal which saw American actors' agent and ex-Disney executive Michael Ovitz take charge. Things deteriorated quickly between the company and co-founders Drabinsky and Gottlieb. The two were dismissed and escorted, under security, out of Livent's Toronto offices on August 13, 1998. Livent subsequently filed a $225 million lawsuit against them.

In November 1998, Livent sought bankruptcy protection in the US, claiming a debt of $334 million. The RCMO (Royal Canadian Mounted Police) launched a criminal investigation and securities rulators in both Canada and the US began investigating the company's books.

In her ruling, the culmination of an 11-month much-delayed trial, Ontario Superior Court Justice Mary Lou Benotto said, "The creative success that you achieved due to your company was spectacular." But her tone quickly changed as she cited a "deliberate misrepresentation" in Livent's public offering and "widespread and long-standing" fraud thereafter.

"I have been satisfied beyond reasonable doubt that you knew what was happening . . . That's a guilty verdict."

The trial started on May 5, 2008, and saw 14 witnesses, 237 exhibits, and produced more than 7,000 pages of transcripts.

Witnesses at the trial testified to a dysfunctional corporate culture in which Drabinsky and Eckstein would shout and swear at meetings and the company had trouble paying its bills.

The pair will be sentenced on April 8.

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