News > Companies
Ex Livent execs indicted
January 13, 1999: 5:55 p.m. ET

Drabinsky, Gottlieb charged with fraud and pocketing $4.6M; SEC also files suit
graphic graphic
NEW YORK (CNNfn) - The former chairman and president of Toronto-based Livent Inc., the producer of the Broadway show "Phantom of the Opera," were indicted Wednesday on charges they bilked about US$4.6 million and "cooked the books" at the theatrical company to cover massive losses.
     The indictment filed in U.S. federal court in Manhattan named Garth Drabinsky, Livent's former chairman, and Myron Gottlieb, former president in 16 felony counts of violations of securities laws.
     The two co-founders of the company, who were ousted when Livent filed for bankruptcy last November, were among 9 former officers named in a related civil suit filed by the U.S. Securities and Exchange Commission for accounting fraud from 1990 to 1998.
     "The action charges the former senior management with fraud in their role in a multi-faceted and pervasive scheme to cook Livent's books," said Richard Walker, director of the SEC's enforcement division.
     Three of the defendants have agreed to settlements with the SEC. The investigation is continuing.
     The indictment and lawsuit, officials said, capped a four-month investigation by the U.S. Attorney's office for the Southern District of New York, the SEC, and the FBI.
     The alleged improprieties came to light after a new Livent management team suspended both Drabinsky and Gottleib last August, insisting it had found an array of accounting irregularities in the company's books.
     The SEC officials said that discovery by the new management team, headed by the former investment banker Roy Furman, who assumed control of the company last summer, was what sparked their probe.
     In a statement from Toronto Wednesday, Drabinsky said the charges are "baseless" and insisted the new management, which has filed a $200 million lawsuit against the two former executives, pushed for the U.S. action.
     "I never would have knowingly permitted the release of false financial statements about Livent," said Drabinsky, who with Gottleib filed a $225 million countersuit. "I will fight on until the truth has been established and my reputation has been restored."
     The former executives were said to have engaged in kickback schemes, improper asset and revenue recognition, insider trading, and the issuance of false SEC filings since 1995.
     The longtime scheme allegedly involved at least 17 filings made by Livent during its first three fiscal years as a publicly traded company in the United States starting in 1995 and continuing through the first quarter of fiscal 1998.
     In one instance, officials said, the Livent executives arranged for two "outsiders" to buy tickets to the company's Los Angeles show of "Ragtime" as a way to meet minimum purchase requirements to keep the show going.
     In the first few years of Livent's existence, from 1990 to 1993, executives arranged for the company to pay for millions of dollars in false construction projects with the money fed back into the pockets, officials said.
     Drabinsky and Gottleib could face a minimum of 5 years in prison and fines of a maximum of $100,000 for each of the counts, officials said. Shareholders have lost about $100 million in the wake of the financial troubles and a subsequent share-price tumble.Back to top
     -- from staff and wire reports


Livent finds backing - Nov. 30, 1998

Livent files for bankruptcy - Nov. 18, 1998


U.S. Securities and Exchange Commission


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney