Will the guilt or innocence of Livent founders Garth Drabinsky and Myron Gottlieb rely on whether Diane Winkfein recalls whether a scribbled notation on a financial document was written on April 23, 1998 or the next day? The answer appears to beyes. That date is vital to the defence, judging by the amount of time Edward Greenspan, the lawyer defending Garth Drabinsky, spent questioning Diane Winkfein on that point.
Greenspan spent most of yesterday afternoon and a good part of this morning cross-examining Winkfein, the former Livent controller who has admitted in court that she has a lousy memory, about three internal Livent financial documents: one printed at 12:19 p.m., one at 4:04 p.m. (both April 23rd) and another at 1:17 a.m. on April 24th.
The documents printed at 12:19 and 4:04 are covered with handwritten notes from Winkfein and Gordon Eckstein, Livents former senior vice president of finance and administration, that the defence contends are instructions to improperly manipulate Livents financial results for the first quarter of 1998.
Over the past two days, Greenspan meticulously went through testimony Winkfein has given over the past decade reading 14 examples where she stated or at least agreed that the meeting in which those notes were written occurred on the April 23. As a result of the alleged manipulations, Livents financial loss for the period dropped from $23.745 million at 12:19 p.m. to just under $18 million at 1:17 a.m.
Then came the bombshell if you can call the revelation of when a note was scrawled on a piece of paper a bombshell. As Greenspan was quizzing Winkfein about a note in which Eckstein allegedly instructs Livent accountants to improperly add $1 million in deferred revenue to the companys current financials, Winkfein told the court that despite her numerous statements to the contrary, she now believes that the note was actually written the next day on April 24th.
You testified at the preliminary inquiry that you actually saw Gordon Eckstein transpose that note to on April 23 during the 4:04 meeting, Greenspan protested incredulously, noting that this was the first time she has ever mentioned that the notes may have been made on April 24.
I gave that answer, but I think it was wrong, replied Winkfein. There were two meetings on two days,
You confirmed 14 times that the meeting occurred on April 23rd, Greenspan said. You made it clear that it was April 23rd.
If you read the rest of my testimony you will see that it wasnt clear, Winkfein replied. I settled on the date based on the dates on the documents.
This is the second bombshell Winkfein has dropped on defence lawyers. At the preliminary hearing in 2005, she revealed the now-infamous Paula Adler story in which Winkfein described a brief conversation with Drabinsky that appears to affix him with knowledge of the alleged financial fraud at Livent as early as 1995. When Greenspan probed the circumstances surrounding her epiphany, it only made matters worse, as she added details that made her new-found recollection seem not only believable, but plausible. Greenspan wasnt going to make that mistake again. When Winkfein asked: Can I explain why I think there were two meetings?
No, not now, Greenspan replied. Not now. Not ever.
The reason the date is so important is because on April 23, Garth Drabinsky was not in Toronto to give Gordon Eckstein instructions on how to manipulate the companys financial statements. At the time, Drabinsky was in New York meeting with representatives of former Hollywood mogul Michael Ovitz to negotiate the sale of a controlling stake in the company, Greenspan has told the court. During the testimony of Gordon Eckstein, Drabinsky produced flight records from Livents corporate jet to prove that Drabinsky was not in the office.
Greenspan continued to slam Winkfein about her most recent recollection about the meeting asking her if she reported this new epiphany to prosecutors. Winkfein replied that she had. When Greenspan asked her if she reported that she now thought that Eckstein wrote his notes on April 24, she said she had not she didnt think it was important. I have no idea what is important at this trial, she said.
I would suggest to you that one thing you know is very important is that if directions were given to you by Mr. Eckstein to do any manipulations before any meeting with Mr. Gottlieb and Mr. Drabinsky, then it means he was doing it on his own, Greenspan said.
In his testimony earlier in May, Eckstein testified that he always got instructions on which Livent accounts to manipulate before instructing staff to make allegedly fraudulent manipulations to the companys computerized financial records. He also insisted that he met with Drabinsky to receive his marching orders for the quarter on either on April 23 or 24.
Eckstein also testified that many of his notes on those April 23 financial statements were not directions to manipulate the companys financials, but were actually legitimate questions and adjustments he normally made in the course of preparing the financial statements.
But Drabinsky could not have given instructions to manipulate Livents financials on April 24 either, the defence maintains. On that day, Drabinsky traveled from New York to Washington to attend a Ragtime-themed Democratic Party fundraiser with then-U.S. President Bill Clinton.
Eckstein insisted that a meeting occurred on either the 23rd or the 24th and that the meeting was attended by former Livent accountant Chris Craib. Sometime after that meeting Craib telephoned former Livent CFO Maria Messina to inform her that Drabinsky was allegedly planning to continue to manipulate the companys financial statements. Messina testified that that telephone call prompted her to write a memo to Drabinsky and Gottlieb threatening not to support the financial statements to the companys board of directors and auditors if they contained the manipulations.
The first quarter of 1998 is not the only period where Drabinsky was not around to direct the alleged financial fraud at Livent, Greenspan told the court. Drabinsky left Toronto on the companys corporate jet on April 21, 1997 and was out of the office until April 28. This may be the first time in history that an executives use of the corporate jet has been cited as an alibi against allegations of financial fraud. According to Livents financial records, numerous manipulations were made to the companys general ledger during that period that pushed Livents financial performance from a loss of more than $8 million to a profit of more than $5 million.
Do you see you were inputting manipulations without any direction from Mr. Drabinsky or Mr. Gottlieb? Greenspan asked Winkfein. Doesnt that surprise you now?
Not particularly, no, replied Winkfein.
Im going to suggest to you that it should surprise the hell out of you, Greenspan continued. Does it not surprise you that Gordon Eckstein was giving you instructions without getting the approval of Mr. Drabinsky or Mr. Gottlieb?
No. The financial statements were issued and they were issued with their approval, Winkfein countered.
I didnt ask you that. Doesnt it surprise you that the orders for manipulations didnt come from them? Greenspan repeated.
Not particularly, no, Winkfein said.
Greenspan also questioned Winkfein extensively about her day planner that was seized following the collapse of the theatre company. In the diary, Winkfein not only kept track of birthdays and significant company events, but made extensive notes about the dates and times that members of Livents accounting staff were meeting with investigators from the RCMP, U.S. Justice Department and U.S. Securities and Exchange Commission.
Winkfein insisted that she kept track of her colleagues’ meeting dates because it was merely a point of interest. But Greenspan insisted that it suggested collusion among the accounting staff that was trying to keep their stories straight with authorities. I would think that Fort York would be a point of interest in this city, Greenspan said. But Maria Messina going to see the RCMP is a point of interest?
Yes sir, Winkfein replied.
What’s the point of interest, if not for you people to all get together and make sure you’re working for the team against Garth Drabinsky and Myron Gottlieb, Greenspan said.
As evidence of that collusion, Greenspan cited Winkfein and Grant Malcolms decision to plead the fifth and not give evidence in her first meeting with the SEC on Oct. 8, 1997. It was a decision that was clearly linked to the notation for $125 million a reference to the US$125 million in bonds that Livent had sold to U.S. investors in the fall of 1997 Winkfein had written by the date, Greenspan suggested.
Now, stick with me, because it’s kind of complicated. That bond sale was important because, at the time, the SEC was considering charging Maria Messina with fraud in relation to the bond sale, Greenspan said. Those charges would stem from the fact that in her initial testimony before the SEC on Sept. 9, 1998, Messina had indicated she may have first learned about the fraud from a brief discussion with Winkfein and Malcolm in June 1997. Messina quickly retracted the statement and later told the SEC that she did not fully learn about the fraud until much later in the year.
By pleading the fifth and not telling the SEC about her conversation with Messina about the fraud, Winkfein aided Messina in avoiding additional charges in the U.S., Greenspan insisted. [Messina] gives the SEC her story about finding out about the manipulations after talking to you and Grant Malcolm you knew that, Greenspan charged.
No, I didnt, Winkfein replied.
Im going to suggest to you that [Messina] called you the night of her SEC testimony, Greenspan continued.
No sir, she didnt, said Winkfein, shaking her head and smiling.
Im going to make a serious allegation so wipe that smirk off your face, Greenspan said. Messina is very concerned about this US$125 million bond offering. She is going to get charged with financial irregularities if she knew about the manipulations before the offering you know that.
No sir, I didnt, said Winkfein. It was never discussed.
Winkfein could not recall why she had written the 125 million notation in her diary, but suggested that it was a reminder that an interest payment on the bonds was due the next week. Sure enough, next week there is a notation that the interest payments were to be paid. However, Greenspan countered that nowhere else in the diary was there a notation about other interest payments due to the bondholders.
Greenspan continued to interrogate her about the diary for some time. Winkfein insisted that while the finance staff did talk about what was happening, they changed their statements. The only statement I was ever asked to present was the truth. I was never asked to change my statement, she said.
After three days of cross examination, Edward Greenspan wrapped up his questioning today. Tomorrow she will face questions from Myron Gottliebs lawyer, Brian Greenspan.