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In addition to being an accomplice in the fraud, Eckstein is a corrupt, deeply flawed bully who ruled Livent's accounting department with fear and intimidation, the defence suggested. Even prosecution witnesses agreed that Eckstein was an odious manager whom they often referred to as "Sybil" — a reference to the 1970s film and book about a woman with multiple personality disorder. "He could be the nicest, gentlest person one minute and just be a vile human being 30 seconds after that," Messina testified at the trial. "I had terrible run-ins with him. The verbal abuse was just unimaginable."
Messina is not much better, defence lawyers insisted. The former Livent auditor who left Deloitte & Touche in 1996 to become the company's CFO, has portrayed herself as the "whistle-blower" but she is little more than an "opportunist" who is a biased and unreliable witness, the defence argued. Defence lawyers suggested that Messina's hiring actually proves their clients did not know about the fraud and cited the move as "a pillar of reasonable doubt" in final arguments. Nobody engaged in fraud would hire their former auditor as CFO; the risk of exposure would be too great, the defence argued. That argument sounds convincing until you realize that now-infamous Enron Corp. recruited heavily from its accounting firm Arthur Andersen and that new corporate governance rules in Canada and the U.S. now ban the practice. Since the collapse of Livent in 1998, Messina has been paid more than $2.95 million by Livent's lawyers, Stikeman Elliot LLP, for work in support of the company's $100-million lawsuit against Drabinsky and Gottlieb as well as its $450-million suit against Deloitte & Touche. "[Messina] has been a paid witness ‘in waiting,'" said Drabinsky's lawyer, Eddie Greenspan. "Messina has shown no compunction to continuously lie." The defence spent weeks grilling witnesses about the events that occurred after the April 1998 announcement that Drabinsky and Gottlieb had sold a controlling stake in Livent to Ovitz and would hand day-to-day control of the company to his financial managers. Shortly after the announcement, Eckstein and Livent controller Chris Craib say they attended a meeting with Drabinsky where he openly discussed plans to manipulate the company's first-quarter financial results. That meeting never took place, the defence contended, and they have a picture that proves it.
That meeting took place on April 24 at around 2 p.m. in Livent's downtown Toronto offices, Craib first told investigators. But at that time Drabinsky was flying back to Toronto in Livent's private jet after attending a gala Ragtime-themed Democratic Party lunch in Washington, D.C., with President Bill Clinton. The defence even introduced a photo taken at the lunch — of Drabinsky, Clinton and Drabinsky's "mistress" — to prove his attendance. Craib insisted that he merely got the time of the meeting wrong — and that Drabinsky returned to Livent's offices later that afternoon.
After learning about the meeting from Craib, Messina testified she wrote a memo threatening not to support Livent's financial statements to the company's auditors or board of directors. Following a meeting with her, Drabinsky and Gottlieb backed down from their plan, Messina told the court. However, defence lawyers pointed out that in Messina's memo and subsequent meeting, she never used the word "fraud" or anything else that would imply criminal wrongdoing. The memo and meeting were part of a "sinister and malicious" plan by Messina and Craib to put themselves in a positive light with new Ovitz managers. "It is not an overstatement to describe this memorandum as both self-serving and Machiavellian," said Brian Greenspan.
Motive, motive, who's got the motive?
Defence lawyers cited the Ovitz deal as well as the firing of COO Topol as further "pillars of reasonable doubt" and evidence their clients knew nothing about the fraud. A due diligence investigation conducted before the deal was finalized, as well as the installation of new managers, would have inevitably led to discovery of the fraud, defence lawyers argued. And firing Topol is just as crazy since he could easily have "squealed" on the alleged fraud, said Eddie Greenspan. "This is an irrational act if Topol is a co-conspirator. .... It's illogical that two fraudsters would fire a third fraudster for stealing a small amount of money."
But the judge didn't seem to be buying it. During final arguments, she asked Eddie Greenspan if the massive writedown taken before the Ovitz deal could have cleared up much of the fraud on Livent's books and given Drabinsky and Gottlieb enough comfort to both fire Topol and invite Ovitz to examine the books. In a five-part answer, Greenspan suggested the writedown would not have concealed evidence of a fraud from Ovitz, nor would it have insulated Drabinsky and Gottlieb from accusations levelled by an angry Topol.
Drabinsky and Gottlieb had little to fear from Topol since he was "up to the eyeballs in the fraud," Chief Crown lawyer Robert Hubbard said in his final rebuttal to the defence arguments. Had Topol "squealed" about the fraud, he would have been in as much legal jeopardy as his co-conspirators. "Topol was not likely to confess to anyone," said Hubbard.
Drabinsky and Gottlieb may not have been nervous about opening their books to Ovitz or even turning over day-to-day management of the company to his managers. After all, Livent's own auditors, Deloitte & Touche, had conducted far more intrusive and aggressive audits every year and failed to find any hint of an alleged ongoing fraud, let alone a fraud that the executives may well have thought had been wiped clean by the $27.5-million writedown announced prior to the Ovitz deal.
The Livent executives may not have been scared about the new managers brought in to run the company, either. As part of the Ovitz deal, Drabinsky stepped down as chairman and CEO and handed company management to Roy Furman, a New York investment banker. Furman and Drabinsky had a long and collegial relationship. Drabinsky employed Furman's company and consulted him extensively during his tumultuous time as Cineplex CEO. "Roy's an effervescent, enthusiastic character, effusive, but also loyal, supportive and always ready with cogent advice," Drabinsky wrote in his autobiography. If Drabinsky and Gottlieb had been aware of the alleged fraudulent manipulations to their books, could they have been counting on Furman's "loyal" and "supportive" nature to discretely handle any potentially embarrassing accounting revelations? If so, they would be sorely disappointed. As the heads of Livent, Drabinsky and Gottlieb had the strongest motive to engage in accounting fraud, prosecutors argued. However, the fact neither executive sold a single share of the more than $60 million worth of stock both men held, undercuts that theory, the defence argued. "The prosecution's position that Mr. Drabinsky and Mr. Gottlieb had the most to gain and the most to lose as a motivation for fraud, ignores the fact that at no time did Mr. Drabinsky or Mr. Gottlieb do as fraudsmen do — cash out," said Brian Greenspan.
Prosecutors also found evidence of motive in an unusual place: a letter Drabinsky wrote to Karen Poppell — the same woman photographed with him at that Washington lunch. In the undated, emotional and handwritten letter, Drabinsky says he has finally "come clean" with his wife about their passionate affair, but also complains about an "impossible level of personal debt" that he had been struggling for five years to get out from under. The defence dismissed the letter outright and complained that it's not even clear when it was written or if it was ever sent.
While not cited by prosecutors, a passage from the letter could provide another explanation why Drabinsky may have gone to such lengths to deceive investors — and it has nothing to do with money. In the letter, Drabinsky tells Poppell that he should have told her that he was not going meet a March 31 "deadline" — apparently, for Drabinsky to leave his wife. He did not tell Poppell of his plans because "I never wanted to admit weakness to you or dilute your confidence in me," Drabinsky writes. Having to admit that Livent was losing money — and lots of it — would certainly have diluted the confidence of investors, creditors, critics and Drabinsky's legions of fans and supporters. Was it easier for Drabinsky to fiddle with the company's books than admit that he could not realize his vision of bringing spectacular, crowd-pleasing musical productions to stages in Chicago, New York and Toronto? By pushing expenses further into the future, did he gamble that he could produce another mega-hit like The Phantom of the Opera that would solve Livent's accounting problems and make that vision a reality?
Judge Benotto has ordered lawyers to return to court on Feb. 2 — Groundhog Day — to set a date when she will deliver her verdict.
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