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Drabinsky Final Argument - 29: The Final Charges

it is not until the conclusion of Greenspan’s argument that he even begins to address the questions raised in the first fraud count – that Drabinsky and Gottlieb manipulated Livent’s financials prior to the company’s initial public offering.The charges stem from a scheme concocted by Gottlieb where Livent’s construction suppliers paid Gottlieb and Drabinsky millions of dollars for business services that were never performed and then were paid back by submitting bogus construction invoices for the same amount.
The defence explanation – what a surprise – it was all Eckstein’s fault. He’s the one who improperly booked those fruadulent invoices.
Forget the testimony that Drabinsky’s longterm partner Myron Gottlieb came up with the scheme, signed the cheques and thus saw the bogus invoices that indicated where those inflated invoices would be booked. Forget the testimony of Peter Kofman, one of participants in the scheme, who actually wrote a memo to Drabinsky laying out how much he had been paid for legitimate construction work and how many millions went to Drabinsky and Gottlieb for bogus business service.
As for the second fraud count and the charge of uttering forged documents – the company’s financial statements – the Crown has not proven its case, the defence argues. Eckstein provided Drabinsky and Gottlieb with “reasonable rationales” for Livent’s accounting practices – even though those practices were often not implemented or even appropriately used.
Of course, if Drabinsky and Gottlieb knew about the accounting moves, Ecksstein was making, but had been convinced they were both legal and appropriate, why is there no evidence that they discussed those moves with the company’s auditors about their practice or “rolling” expenses forward? These were executives who were not afraid to confront their auditors when they did not agree on how to book a transaction.
The defence also argues that hiring Maria Messina as the company CFO is “completely irrational” if the executives knew about the fraud. Messina was the company’s former auditor and maintained strong ties with Deloitte and Touche, the company’s accounting firm. But was it irrational? Just ask executives at Enron who recruited many of their accountants from Arthur Anderson – the company’s auditing firm. Legislation enacted in Canada and the U.S. following the Enron debacle now mandates a cooling period of at least a year before a company hires a former auditor.
Messina – and other members of the accounting five – never thought they were engaged in fraud, the defence argues. They accepted Eckstein’s rationalizations. Had they thought they were involved in fraud, they would have walked away, Greenspan says. “Messina did not walk away from her position at Livent because she, with the assistance of Eckstein, rationalized the accounting treatments being employed there. The same is true for the other accounting five.”
But if that’s the case, why did they not talk about those rationalizations with Drabinsky, Gottlieb, the auditors or anyone else? Somehow, the accounting five realized that those accounting rationales would not be accepted by new management and sprung into action, the defence argues. Their plan: conspire to frame Drabinsky and Gottlieb for the fraud using a conspiracy that would have put Machiavelli to shame.
In the end, it’s still up to Justice Mary Lou Benotto whose argument she finds more compelling.