Aug

In my original blog post about Diane Winkfein, I speculated that, despite having a 23-year working relationship with Garth Drabinsky, the testimony of the former Livent controller may have actually done more damage to Myron Gottlieb. After all, Winkfein had more contact with Gottlieb and told the court about two occasions that related directly to Gottlieb’s knowledge of the alleged fraud that occurred at the doomed theatre company. Today, Gottlieb’s lawyer, Brian Greenspan tried to undo some of that damage.

It didn’t really start out all that well. Greenspan questioned Winkfein about her previous testimony that she never received any direct instructions to manipulate Livent’s books from Drabinsky or Gottlieb. In fact, in previous testimony, she had referred to Eckstein as “the king,” Greenspan insisted. That’s when Winkfein replied: “I took my instructions from Gordon Eckstein. But never once did he say to me ‘never mention this to Garth or Myron.’”

Greenspan was not pleased. “Did you work all night to come up with that?” He asked, his voice rising. “Was that responsive to my question? Can you even remember my question? No, you just threw that in there gratuitously,” he said. “Perhaps we’ll leave it up to the judge to determine if that was responsive.”

We’ll have to wait until the end of the trial to determine what Justice Mary Lou Benotto thought about Winkfein’s not-so-subtle dig or whether Greenspan made headway in undercutting her credibility.  That’s vital since she testified that – on at least one occasion – Gottlieb helped to conceal the alleged financial fraud from the company’s auditors.

As part of their regular sampling and testing of invoices during the 1998 year-end audit, Deloitte and Touche had selected a number of invoices that had been allegedly manipulated, Winkfein told the court. Gord Eckstein, Livent’s former senior vice president of finance and administration, had stalled the auditors for as long as he could but they insisted the company produce back-up evidence for the allegedly bogus transactions.

A schedule Winkfein produced detailing the problematic invoices became a hot-potato within Livent, she told the court. Eckstein ordered Winkfein to send a copy of the schedule to Gottlieb and have him deal with it, after both he and former Livent CFO Maria Messina refused the assignment, Winkfein told the court.

But that story is preposterous, charged Greenspan, since Gottlieb never dealt with the auditors on matters of such detail. “I suggest to you that you never sent it up to Myron and you have no idea what happened with the schedule,” he said.

“I did send it up to Myron,” she insisted.

Winkfein agreed with Greenspan that Eckstein had never asked Gottlieb to deal with the auditors on questions like that in the past, but added that the invoices had become a “sticking point” and something that he did not want to deal with anymore. Eckstein, who defence lawyers have tried to portray as the real mastermind behind the alleged accounting fraud, “was as upset” about the alleged manipulations as the rest of the accounting staff, Winkfein said. “Gord and Maria would not deal with it, and he moved it up to Myron,” she told the court. “Other than the fact I sent the schedule upstairs, that was the extent of my knowledge of how it got dealt with.”

Eventually, answers were ultimately provided to the auditors, although Winkfein testified that she never found out who provided them.

Winkfein’s story is not plausible, Greenspan said. According to Deloitte and Touche’s own working papers, the auditors received satisfactory explanations for the invoices from Messina and Eckstein – not Gottlieb. “I suggest to you that you quite wrongly suggested that Mr. Gottlieb had anything to do with the explanation to the auditors. It was out of his scope,” Mr. Greenspan said.

“My answer stands, sir,” Ms. Winkfein said.

Those “sticking point” invoices were not only a matter of controversy at the criminal fraud trial, but also at the Institute of Chartered Accountants of Ontario (ICAO) professional misconduct hearings into the Deloitte accountants’ handling of the Livent audit. In its decision, the ICAO found that the auditors cleared the invoices based on representations made by Gordon Eckstein. However, the ICAO also noted that three of the eight questionable invoices came from F&D Scene, a theatre-set construction company in which Garth Drabinsky held a minority stake.

Deloitte accountants violated the rules of professional conduct by not contacting F&D Scene to provide any back-up materials to confirm the transactions, the ICAO ruled. “F & D Scene was a related party which should have further sensitized the auditors’ skepticism,” the ICAO professional committee ruled last year. “It should have been a relatively simple matter to request copies of these invoices from F & D Scene or examine evidence of payment.”

Greenspan later attacked Winkfein’s testimony about a conversation she had with Gottlieb shortly after the announcement that the founders had sold control of the company to former Hollywood mogul Michael Ovitz. Winkfein was summoned to Gottlieb’s office she told Eckstein she would not deceive the new Livent managers.

Gottlieb acknowledged that Livent had “had some difficulties,” but that she shouldn’t worry, Winkfein previously testified. Gottlieb had been on the board of directors of another company that had dealt with accounting issues and they had been handled “in an orderly fashion” with no damage to the company’s share price, Winkfein recalled. Gottlieb assured her that he, Drabinsky and Eckstein would continue to oversee Livent’s financials for the next financial quarter and that new Livent managers, would be “too busy” in New York to take full control of the company’s financials. Winkfein testified that she asked Gottlieb: “do you want me to lie to new management?” But Gottlieb just smirked, looked away and ended the conversation.

Greenspan accused Winkfein of completely misconstruing the conversation. As part of the sale to the Ovitz group, new Livent managers would have full control of the company’s financials and Gottlieb had been named vice-president of Canadian operations – a title with no real responsibilities, he said. “To think he’d have anything to do with Q2, as executive vice-president of Canadian operations, was brain dead,” Greenspan charged.

Winkfein agreed that she thought Gottlieb’s assurances were “naïve.”
It is far more likely that Gottlieb was merely trying to reassure her that she would still have a job after the Ovitz transaction, Greenspan said. “I suggest to you it was a pep talk, and that’s exactly what it was. It was a discussion to encourage you that you’d never be fired and you had a place at Livent,” Greenspan said.

“That was never part of the conversation, sir,” Ms. Winkfein replied.

Following the end of Greenspan’s cross examination, Chief prosecutor Robert Hubbard briefly re-examined Winkfein about notations in her day planner raised yesterday by Drabinsky’s lawyer, Edward Greenspan. Greenspan charged that a notation for $125 million on the day Maria Messina testified indicated that Winkfein and Messina had colluded in their testimony.

The $125 million was a reference to a Livent sale of bonds in the fall of 1997, Greenspan charged. Winkfein’s testimony before the U.S. SEC could have prompted charges against Messina in relation to the bond sale, Greenspan insisted. Winkfein, disagreed and said that while she could not remember why she wrote the note, it was likely a reminder that interest payments were due on the bonds the next week. However, Greenspan said that nowhere else in the diary was there another reference to the $125 million – a point he backed away from.

In his re-examination, Hubbard pointed out that there are five other references to the “$125 million,” two in April and three in October. There are also nearly two dozen other notations in the diary referring to other interest payments that Livent had to pay.

The trial resumes September 2 with testimony of Tony Fiorino, another Livent controller.

John Gray