The spectre of Gordon Eckstein never drifts far from the action at the criminal fraud trial of Garth Drabinsky and Myron Gottlieb. But defence lawyers evoked the ghost of Livents former vice-president of finance and administration with great gusto today as they grilled former Livent construction controller Tony Fiorino. Unlike previous witnesses, Fiorino had almost no direct encounters with either Drabinsky or Gottlieb that would indicate their knowledge of or participation in the accounting fraud that ultimately destroyed the theatre company.
Eckstein and former Livent CFO Maria Messina both testified extensively about watching Drabinsky and Gottlieb oversee the alleged fraud. Even junior Livent accountants Grant Malcolm and Diane Winkfein both gave evidence of their personal encounters with the Livent founders that prosecutors allege show that Drabinsky and Gottlieb knew about the companys peculiar and allegedly illegal accounting. But just about all of Fiorinos understanding of the alleged involvement of the senior managers came from Gordon Eckstein the man defence lawyers maintain was the real mastermind behind Livent’s alleged massive fraud.
David Roebuck, one of the lawyers representing Garth Drabinsky, painstakingly re-iterated just about every negative characterization of Eckstein that Fiorino had shared with lawyers, investigators and police who interviewed him following the disclosure of alleged serious accounting manipulations at Livent. Fiorino agreed that Eckstein was a volatile and extremely abusive manager who had his staff walking on pins and needles and who often had convenient memory lapses when it came to his orders to staff. “Eckstein’s abuse was part of the reason you did the things you did?” Roebuck said.
“In part, yes,” Fiorino replied.
But Fiorino still stood his ground. He wouldnt agree that Eckstein used racist slurs or that he threw a pile of papers at him and demanded he get down on the floor and pick them up, or even that Eckstein acted irrationally. However, when asked him if Eckstein always seemed to be in touch with reality, Fiorino replied: Not all the time.
Fiorino even took a subtle swipe at Livents managers when Roebuck asked him if he agreed: [Eckstein] believed he was omnipotent and so important to the company that he could do anything he wanted.
He acted that way for a long time and no one reined him in, Fiorino replied. “If you act a certain way and no one above says `don’t act that way,’ you continue to act that way,”
Roebuck remarked that Livent senior managers had full time jobs of their own and Drabinsky was too busy travelling and overseeing the companys slate of musical productions to oversee the management of the companys finance department.
As Livents senior accounting officer, there is no disputing that Eckstein oversaw the allegedly improper transfer of millions of dollars in expenses onto the companys balance sheet. But Eckstein testified that he was merely acting on the instructions of Drabinsky and Gottlieb. Defence lawyers have dubbed this Ecksteins Nuremburg defence. But it was actually Fiorino who came up with the phrase after Eckstein told him that if the alleged fraud was ever discovered, he would claim he was merely following orders. I said Gord, thats the Nuremburg defence. It didnt work then and it wont work now.
“When [Eckstein] gets cornered he is going to point the finger at people above him,” Roebuck said. “Its all a bit prophetic isn’t it Mr. Fiorino?”
Of course the people that used the Nuremburg defence the Nazis actually were following orders. But on at least two occasions Eckstein ordered Fiorino to conceal the improper transactions from Livent senior management. The first occasion involved more than $10 million in production costs that had been improperly transferred to accounts for the construction of the Ford theatre in New York. Eckstein ordered Fiorino not to include that $10 million in costs in regular budget-to-actual reports Fiorino produced that tracked spending on the construction project. Those reports were routinely circulated to senior management. [Eckstein] said, Don’t include it, everybody knows it’s there,’ Fiorino told the court.
He’s telling you not to pass the information on to his superiors, to leave them out of the loop? David Roebuck replied.
That’s correct, Fiorino replied.
The second occasion related to an allegedly improper ticket buying scheme in which Livent managers allegedly purchased nearly US$1.1 million in tickets to its production of Ragtimein Los Angeles using false invoices from Kofman Engineering and Execway two of Livents construction suppliers. More than US$400,000 of those ticket sales were allegedly booked into the companys construction projects thus hiding the costs.
Eckstein ordered Fiorino to remove a notation on a report about the ticket sales that indicated those sales were booked into the companys fixed assets. The report without the notation was ultimately distributed to Livent managers. This is the second time in your own evidence that Mr. Eckstein has directed you to take out information, relevant information, information that management should know, out of documents, Roebuck said. Dont you start to become suspicious that people at the top are being left out of the loop?
The use of Kofmans credit card and Execway [to buy Ragtimetickets]everyone was well aware of that, Fiorino replied.
And its true, Fiorino testified that he routinely hand-delivered cheques to Myron Gottlieb to ensure Kofman was quickly reimbursed for the ticket purchases. Fiorino testified that he told Gottlieb the cheques were issued to pay Kofman for the tickets, even though the bogus invoices attached to the cheques clearly stated they were for construction work. But Fiorino never told Gottlieb or other managers where he ultimately booked those expenses, Roebuck insisted.
Thats right,” Fiorino replied. “The only person I spoke to about that was Gord.
While the focus was on Eckstein for most of Fiorinos time on the stand today, there were a few flashes of Fiorinos personality and the complicated circumstances of his time at Livent. For instance, it was Fiorino who came up with the complicated scheme of dummy accounts in Livents fixed asset budget to store the allegedly improper production cost transfers. The accounts had names like specialty electrical, or specialty construction, and other names that looked like they were plausible construction related expenses.
He testified that he came up with the names to keep the bogus expenses separate from the companys legitimate construction expenses, as well as to hopefully throw auditors off the trail should they ever audit the companys fixed assets.
Fiorino told investigators from the Institute of Chartered Accountants of Ontario that while he thought the accounts stood out like a sore thumb, if the auditors uncovered one of the bogus expenses he would have lied and told them that it was included in error. However, secretly, he hoped the auditors would find the error and uncover the fraud, he told the court. If they caught the error I was hoping it would lead to more sampling and they would uncover the whole thing, he told the court.
To Roebuck, that seemed like a contradiction: Which is the truth? Did you create account names because they would stand out like a sore thumb, or did you create them because they sounded like construction expenses and you were hoping to evade scrutiny?
I created the accounts. I was hoping they would sample this area and catch it, he replied.
The second flash came very early in Fiorinos testimony when Roebuck almost sarcastically referred to Fiorino as a disinterested witness.
I never said I was disinterested, Fiorino replied.
Are you? Roebuck asked.
No Im not, Fiorino answered.
You have a personal stake in the conviction of Garth Drabinsky [and Myron Gottlieb], Roebuck said. At the preliminary hearing you told me that the conviction of Garth Drabinsky would be a step in recapturing your personal reputation.
Yes, Fiorino said.
Fiorino is expected to wrap up his time on the stand tomorrow. But not before he faces questions from Myron Gottliebs lawyer Brian Greenspan.
Note: In yesterday’s post I mentioned that F&D Scene was a company in which Garth Drabinsky held a minority ownership stake. This is not the case. Livent, not Drabinsky personally, did hold a minority interest in the set design and construction company.