The opportunity to work with Myron Gottlieb was one of the main reasons that convinced Maria Messina to leave her job as an auditor at Deloitte & Touche and join Livent Inc. Today, Messina came face-to-face with Gottliebs lawyer Brian Greenspan and wasted no time before telling the court that while Gottlieb was very nice and well-liked by Livent employees, her old boss could be ruthless when it came to silencing Livents critics.
It’s just the way it was sir,” Messina said. It was the threat of lawsuits, writing letters, he was always saying people had to be silenced, she told the court.
One such critic silenced was Alex Winch, a former hedge fund manager, who criticized Livents accounting policies in a letter to ForbesMagazine in 1995. Livent sued Winch for US$10 million, but eventually settled for an apology as well as a gag order forbidding him to comment on Livent for three years. That order expired in 1999 nearly a year after Livent declared bankruptcy. All he said was that Livents accounting was not conservative and his life was destroyed, Messina said. I can only imagine what would have happened to me.
But far from having his life destroyed, Winch spent only US$13,000 on legal fees and another $42,000 in costs for a total legal bill of $55,000, said Greenspan. At the same time, Winch made US$56,000 short-selling Livents stock. Alex Winch won by $1,000 by selling short and getting sued, he said.
But Messinas hands arent totally clean when it comes to dealing with Alex Winch, Greenspan charged. In a draft memo discussing Livents response to Forbes, Messina actually suggested adding a section that said there may have been a clear motivation on Mr. Winch’s part to distort facts.
Greenspan disputed her testimony pointing out that neither Drabinsky nor Gottlieb retaliated against the New York Timesfor a lengthy Page One story on the theatre company that openly questioned its accounting policies.
Greenspan also confronted Messina with testimony she gave before the Institute of Chartered Accountants of Ontario (ICAO) in which she speculated that Gottlieb and Drabinsky deliberately hired introverted accountants that would not challenge their manipulation of the companys books. You thought they were a bunch of misfits, charged Greenspan.
Introverted, replied Messina.
Many of the accountants who actually executed the fraud were hard working, but lacking in confidence and introverted, Messina told the ICAO. The only odd hire was me, said Greenspan quoting her testimony before the accounting body.
Yes, but I went on to say that I guess [Drabinsky and Gottlieb] thought about me the same way, she said. I was naive. They knew I had no business experience so that made me the perfect candidatethe perfect frontman.
Greenspan suggested that did not make any sense. They hire the former audit partner with the hope that they will be able to either convert that partner into a fellow traveller in the fraud or pull the wool over your eyes forever?
Or they felt they wouldnt have to perpetrate the fraud any more because the company was taking off, Messina replied.
I suggest to you [Drabinsky and Gottlieb] never believed they were engaged in a fraud, Greenspan shot back.
“Facts are the facts, whether they make sense or not,” Messina told the court.
Greenspan suggested Gottlieb and Drabinsky never knew about any fraud because any unusual transactions or accounting red flags were covered up by the accounting staff that provided reasonable and rational explanations. Im going to suggest to you thats what happened at Livent, there was always a reasonable explanation being provided for what was happening.
No, sir, replied Messina.
Gottlieb would not be able to spot those red flags since he had only a macro understanding of Livents financial statements, insisted Greenspan. And despite Messinas earlier testimony that Gottlieb was confident and conversant about accounting, Gottlieb had only a rudimentary understanding of accounting, Greenspan insisted. You expressed disdain and mocked Mr. Gottlieb for his position on certain accounting issues, Greenspan charged.
I disagreed with certain positions, yes.
Greenspan then presented a fax coversheet of a memo Messina sent to Robert Webster, one of the new managers brought in by former Hollywood mogul Michael Ovitz, after he bought a controlling stake in Livent. On the sheet Messina had written: Please dont laugh too hard when you read Myrons memo on ‘Deloitte and Touche.’
In the three-page March 1998 memo, Gottlieb outlines to Drabinsky how he has complained to Deloitte & Touche that the auditors appear to be reviewing the affairs of Livent on a basis that is too rigorous.
Messina conceded that her message to Webster on the cover sheet was a stupid thing to say. However, Deloitte was certainly not treating Livent too rigorously. She said she sent the memo to Webster because she had told him about how Gottlieb and Deloitte had clashed after Gottlieb actively mislead Deloitte & Touche in their auditing of a number of transactions. Mr. Gottlieb was misleading Deloitte & Touche, said Messina. As we all were misleading Deloitte by not disclosing the truth.
The trial continues tomorrow.