Defence lawyers dismiss the letter as irrelevant and urge the judge to completely disregard it. “The letter is not dated. There is no evidence whatsoever that this document was ever sent,” Greenspan argues. “The letter is irrelevant and unstrustworthy.”

But there is one more motive in the letter that neither the Crown, nore the defence discuss. In the letter Drabinsky tells Poppell that he should have told her that he was not going to be able to meet a March 31st “deadline” set – apparently for Drabinsky to leave his wife.  “I never wanted to admit weakness to you or dilute your confidence in me,” Drabinsky writes.

Having to admit that Livent was losing money – and lots of it – would have “diluted the confidence” of investors, creditors, critics and others in the theatre and financial communities. Having to admit that the Drabinsky vision of a successful and glamourous theatre company that raked in enough money to pay for private jets, gala parties and the best live theatre productions ever performed would have been humiliating, wouldn’t it?

Unfortunately, that simplistic theory has proved to be true all too often.

But Greenspan goes on to argue that Drabinsky and Gottlieb had to motive to falsely report higher corporate profits, because Livent shareholders didn’t really care about that sort of stuff. They were much more interested in the good reviews that the company’s shows received in the New York Times. And Livent’s stock did go up after positive reviews of Ragtime were published in Toronto in 1996. The company’s stock dipped after negative reviews of the show appeared in the New York Times in 1998 and Livent shares barely moved after it announced a $30 million loss in the first quarter of 1998.

Still, this may be the fist company in history whose shareholders didn’t seem to care about profits. After all, didn’t the shareholders think that positive reviews would eventually translate into profits somewhere down the line?

The defence pointed to a Deloitte and Touche statement that allowed Livent to book some advertising costs to the Ford Theatre in New York – putting a lie to Messina’s testimony that you could never book advertising to fixed assets. Of course, those expenses were for specific ads related to the grand opening of the theatre – and not for the millions in advertising expenses that Livent allegedly buried into other theatre construction accounts.

The defence argues that it was proper to push advertising from one year to the next since the tickets were sold in future periods. An argument could be made for that, witnesses said, if Livent set up the transactions as a pre-paid expense. Livent didn’t do that, they arbitrarily pulled advertising invoices from one period and shoved the into future periods, prosecutors argue.

As for the improper show-to-show transfers, LIvent’s accounting policies allowed those transfers, but Drabinsky and Gottlieb were unaware of the arbitrary nature of Eckstein’s transfers. “Drabinsky and Gottlieb were not chartered accountants. They were not trained to make accounting decisions,” the defence says. “Things that were very clear to Eckstein wer not clear to others in the accounting department of Livent and certainly would not be clear to two business people with no accounting background.”

Um, alright. But Brian Greenspan argued in his final summation that the budget-to-actual process wasn’t that important in the fraud. In fact, he criticizes prosecutors for not making a clear distinction between the year end financial meetings that Gottlieb supposedly attended on an “as-needed basis,” and the budget-to-actual process that Gottlieb was deeply involved in.

Tony Fiorino, a Livent accountant, actually testified to a conversation with Eckstein where he told him the so-called Nuremburg defence didn’t work for the Nazis and it wouldn’t work for him.

Eckstein testifed that he instructed Grant Malcolm, another member of the accouting five, to show Messina schedules that showed how Livent had improperly “rolled forward” millions in advertising expenses from 1996 to 1997. He later admitted that the schedule may not have been indicated fraud. “Ecskstein’s testimony, to  the effect that I put certain words in documents to connote ‘fraud’ so I could rely upon the documents later, is really his attempt in the witness box to impart a more sinister meaning into the words taht do not connote ‘fraud’ on their plain meaning.”

Fair enough. But the defence has so far not explained how that fits into the quarterly and year-end financial summaries that clearly showed that Livent was “reporting” millions in profits, while it was “actually” losing tens of millions of dollars.

Eckstein denied throwing a clock at Messina; he denied buying her flowers in an attempt to pursue a romantic relationship and denied repeatedly changing the tickets she received for Livent staff events to ensure that she sat next to him.

Eckstein also denied making derogatory and homophobic remarks about Chris Craib and tried to have the accountant fired in May 1998. Craib so feared Eckstein’s attempts to drive him from the company that he consulted an employment lawyer.

“Eckstein’s combination of abuse and cajoling led the accounting staff to suspend their better judgment and accept eckstein;s notion of “normal,” the defence argues. “Likewise, Ecstein could tell Drabinsky and Gottlieb anything about how the accounting department worked and they could have no reason to question him. Ecksteing was the conduit. He controlled and manipulated information both ways.”

Okay, but where is the evidence for that? There was plenty of evidence that Eckstein bullied his staff into believing whatever he said. But I don’t remember any evidence that he bullied Drabinsky and Gottlieb in the same way. I don’t remember any smoking gun memos where Eckstein explained how it was proper to bury millions in advertising expenses into the company’s construction accounts.

“Eckstein came to Livent with a warped sense of what constituted normal or acceptable accounting practices… Eckstein arrived at Livent corrupted.”

“Eckstein lacked competency… and had a poor grasp ob basic accounting concepts.”

“Incompetent and corrupt, Eckstein was aptly described as the Teflon Man.”

“Eckstein exhibited a strong streak of irrational behavior.”

“Eckstein is central to the Crown’s case and the most unsavory witness that testified at trial.”

“The record shows his tendency to lie, to make false accusations, to overstate his evidence, to change his testimony at a whim… to make speeches, to not answer the question asked, to show disrespect to the Court, obfustifcate responsibility and to be combative with defence counsel.”

Whew!

But among the financial statement, corporate memos and other financial documents included in the prosecutor’s final submissions filed with the court earlier this week was one last document that was not dry and didn’t have anything to do with accounting: it was a deeply personal letter from Garth Drabinsky to Karen Poppell – his then girlfriend – detailing problems in their relationship.

In the handwritten and undated 10-page letter, Drabinsky writes about “an impossible level of personal debt” that had “strangled” him for the last five years and goes on to state “how complex it would be to eliminate” that debt. According to prosecutors, that discussion about the level of Drabinsky’s debt provides a motive in the fraud case against the former Livent executive. Drabinsky and Gottlieb had pledged their Livent shares “to cover loans and debt, which translated into a pressing need to keep the stock price up,” prosecutors say.

The letter, which was not discussed during the trial, could very well describe a motive for why the executive would want to boost Livent’s share price. It also provides a unique and unfiltered look into Drabinsky’s personality and his concerns in Drabinsky’s own words prior to the revelations of alleged accounting improprieties at the theatre company. This has been lacking in the trial since neither Drabinsky nor Gottlieb chose to testify on their own behalf or offer any of their own witnesses.

The revelations in the letter could also provide an explanation for why Drabinsky moved to sell a controlling stake in the company to former Hollywood mogul Michael Ovitz in early1998. Was that US$20 million Ovitz transaction what Drabinsky was referring to when he wrote to Poppell: “After a wonderful Christmas we entered the year buoyed up with a new confidence that in February my financing would close, you would move to Toronto…(and) by the end of March I would be out of my marriage.”

During his time with Poppell, Drabinsky writes that he was “involved in a huge personal transformation in my lifestyle” to rid himself of his mounting debt. He adds that he had begun to “investigate every conceivable avenue to liquidate enough of my asset base to free me of this suffering position.”

Drabinsky did not tell Poppell about that debt at the outset of their relationship. He eventually came clean and set timelines for when he would be out from under the debt. Drabinsky thought he would be able to meet those deadlines, but ultimately, he failed. “This was done because of my sense of optimism and confidence; that if I am determined I will not fail… I am not a gay deceiver, but I am too much of an optimist, I over-evaluate. I have learned my limits. The task was simply much larger than I appreciated.”

The crown introduced no evidence of this debt during its case and very little evidence about Drabinsky or Gottlieb’s personal finances in the final year of the company. The court heard brief testimony about the amount of Livent stock that Drabinsky and Gottlieb owned, how many stock options they were granted, the size of their annual compensation and bonuses.

The crown also introduced several statements of net worth that the executives had to provide to financial institutions as part of loans they took out in association with the takeover of Livent. For instance in 1990, Drabinsky reported to the Royal Bank that he had a net worth of $26.1 million. That included a personal art collection valued at $16.275 million; a $4 million home on Strathearn Rd in Toronto, a 50% interest in an ocean-front property in Antigua valued at $315,000; a chalet in Sundance, Utah – the home of the Sundance film festival, as well as $1.6 million in other real estate. Drabinsky valued his stake in Livent at $12.5 million. Those assets were offset by $11.5 million in loans to the Bank of Nova Scotia, Israel Discount Bank and Roy-l Capital, a private firm run by prominent Toronto businessman and philanthropist, Joseph Rotman.

By 1998, Drabinsky’s net worth had increased, but not without liquidating assets. According to documents Drabinsky provided to Brascan in association with another loan, his net worth had grown to $39 million. However, Drabinsky’s personal art collection was now worth about $7.9 million, the Utah chalet has been sold and the value of the house on Strathearn Rd was now listed at $3.25 million. The bulk of Drabinsky’s net worth — $30.8 million — was tied up in 2.1 million Livent shares that were trading at about $14.25 each. The value of Drabinsky’s outstanding loans has also dropped by that time, with the executive owing about $4.5 million to The Royal Bank, CIBC and Waterloo Capital Corp.

According to his net worth statement presented in court, Gottlieb had assets of about $33 million in 1991, offset by about $7 million in loans and other liabilities giving the Livent founder a net worth of about $26 million. As part of a lawsuit filed against the law firm of Stikeman and Elliot last year, Gottlieb says he has been all but wiped out financially.

While there has been little testimony during the trial about the personal financial situation of Drabinsky and Gottlieb, this is not the first time Drabinsky’s girlfriend has made an appearance in court testimony. Gordon Eckstein, Livent’s former senior vice president of finance and administration, testified that Poppell was Drabinsky’s “mistress” during a dramatic testimony early in the trial.

The testy exchange came after Edward Greenspan, the lawyer representing Drabinsky, confronted Eckstein with a photograph of Drabinsky, Poppell and then-president Bill Clinton taken during a “Ragtime” themed lunch in Washington D.C. organized by the U.S. Democratic Party in April 1998. The photo was taken on the same day Eckstein and Chris Craib, a Livent controller, testified Drabinsky was in Toronto attending a management meeting where accounting manipulations were allegedly discussed. The defence insists that the meeting never took place and – while Drabinsky did in fact return to the office later that day – the photo proves Drabinsky could not have attended the meeting when the witnesses say it occurred.

Greenspan disagreed with Eckstein’s characterization of Poppell as Drabinsky’s mistress, insisting that Drabinsky was separated from his wife, Pearl, at the time the photograph was taken. That may be the case, Eckstein replied, but Drabinsky was still married when he began seeing the woman. Poppell had been the subject of much talk in the office since Drabinsky had allowed the woman to live in one of Livent’s company apartments and had the company pay to redecorate the apartment to suit her tastes, Eckstein continued.

Drabinsky’s letter shows confirms that he had in fact been seeing Poppell while still married. The fact that Drabinsky seemed reluctant to leave his wife appeared to have been a sore spot in their relationship, according to the letter. Another source of disagreement was Drabinsky’s refusal to introduce Poppell to his dying mother as well as Poppell’s refusal to read Drabinsky’s autobiography. “My book, over which I labored for four years before I met you, became a major source of acrimony. You refused to read my life story. No matter what excuse you gave me, they were all feeble. There can be no excuse for not reading the story of the one you profess love for. This book meant too much to me. You shunned it and you shunned me.”

Drabinsky eventually did leave his his wife of 27-years, but problems persisted in the relationship. “Who is this Karen Poppell?” Drabinsky writes. Poppell appears to also have been upset that Drabinsky did not make their relationship public during the televised broadcast of the Tony Awards in New York. At one point Poppell fled Drabinsky’s car in the middle of traffic during an argument. Drabinsky complains that she grew upset over “improper place cards at the table,” and “improper forms (were) completed by my pilots” on the corporate jet Livent purchased in April 1998.

The couple’s relationship was not always so tense. Drabinsky describes in heartfelt detail the joy he felt in the early part of their relationship when they travelled to the United States, the Caribbean and Israel where “maybe we reached the essence of a true spiritual and emotional union,” Drabinsky wrote.

Despite all the acrimony, Drabinsky still professed his love for Poppell and ends the letter with hope the couple can still experience a full and wonderful life together. However, the two didn’t make it and eventually split. In 2005, Drabinsky married Elizabeth Winford, a former paralegal with Tremayne-Lloyd Partners who has attended much of the trial. The couple married in a private ceremony held at the Four Season hotel attended by celebrities such as Christopher Plummer, acclaimed Broadway director Hal Prince, Chita Rivera and former CTV broadcaster and Canada’s consel general to New York City, Pamela Wallin. Edward Greenspan and his brother Brian – who is representing Gottlieb, also attended the ceremony.

Drabinsky’s relationship with Poppell is history. Today, there is another woman the theatre impresario is trying to woo – Justice Mary Lou Benotto, the judge overseeing the case. Benotto is expected to deliver her decision on Drabinsky’s fate sometime in the new year.

Next week defence lawyers file their own final summation in the case. In the coming days, I will post a more extensive examination of the prosecution’s summation of the case.

But before the court could hear lightning-fast testimony from former Echo Advertising and Marketing Inc. executives Robin Pullen and Len Gill, defence lawyers had to take one last kick at the can with Chris Craib, the former Livent controller, who spent the last two weeks on the witness stand.

And Edward Greenspan, the defence lawyer representing Drabinsky, didn’t miss the opportunity to introduce another theory about that now notorious April 24, 1998 executive meeting where Craib says Drabinsky discussed plans to manipulate the company’s financial results.

Greenspan wrapped up his cross-examination on Tuesday, but was allowed to re-examine Craib on the issue of the notes Craib  said he took at that meeting. Prosecutors only had photocopies of the notes and had to scramble last week to locate the originals that were finally discovered in the files of the U.S. Department of Justice.

Craib testified that he did not even remember having the notes until sometime after being interviewed by Livent lawyers and the U.S. Securities and Exchange Commission. Craib said he could not remember when or even where he had found the notes, which gave Greenspan the opportunity to present the court with his own theory about the notes.

Greenspan suggested to Craib that sometime between his interview with the SEC and the Department of Justice, Craib found a set of notes from a meeting held on April 23 with Gord Ecsktein, Livent’s former vice president of finance and administration, in which directions for accounting manipulations were actually given. He then added the initials “Per GHD/GE” at the top of the notes to make it appear that they were from a meeting between Drabinsky and Eckstein on April 24.

“You presented to the Department of Justice the April 23 notes masquerading as April 24 notes supported by your testimony of a 2 p.m. April 24 meeting that you know is false,” Greenspan said.

“No,” Craib replied.

Craib looked exhausted and beaten as he left the stand after more than six days under intense cross-examination from both Eddie and Brian Greenspan (Brian Greenspan is representing co-defendant Gottlieb.)

And it may not be over for him yet.

Before he could leave the witness stand Eddie Greenspan asked Madam Justice Mary Lou Benotto to keep Craib under court subpoena until the end of next week pending a possible application the defence lawyer may make next week. He would not tell the court the subject of his application.

The experience of Craib and the two Echo Advertising executives who testified next was a study in contrasts. While Craib’s time on the stand was long and brutal, the testimony of Pullen and Gill was short and sweet. Combined, both men spent just over an hour on the stand – and that includes cross-examination.

Pullen, Echo’s former vice-president of administration, testified that for three years running, Livent asked him to cancel advertising invoices issued at the end December and re-issue those invoices in January in the new calendar year.

Eckstein first approached him with the request in late 1994, Pullen told the court. Former Livent controller Grant Malcolm later faxed him a list of invoices to be cancelled and re-issued.

Prosecutor Amanda Rubaszek took Pullen through copies of the invoices that were cancelled in 1994. One batch of invoices, for more than $172,000, covered radio and newspaper advertising in U.S. cities like Cleveland, Detroit, Rochester, N.Y., and Buffalo, N.Y., promoting Show Boat in Toronto.

Other documents displayed in court showed that Echo was asked to cancel and re-issue invoices worth more than $1 million in 1994, and nearly $2.5 million in 1995. By 1995 Livent was not even waiting for the invoices to be issued and was asking Echo to defer billings until at least January, Pullen told the court.

Pullen also testified that he responded to requests from Livent’s auditors to provide billing information. However, the totals Echo provided did not include the invoices that had been moved from the previous years, Pullen told the court. The move was part of a scheme to mislead auditors, Malcolm told the court earlier in the trial.

In a brief cross-examination Greenspan pointed to a handwritten notation on one of those confirmation requests that suggested the auditors had noted the discrepancy. The note, which was not signed, said that the amount was not included the auditor’s reconciliation since the “supplier has sent an amended statement with significantly different amounts per this confirmation.”

The testimony of Pullen’s old boss Gill was even shorter. Gill testified that Livent was a significant Echo client and that he attended “three out of four,” of Livent’s weekly three-hour advertising meetings held at Livent’s office and chaired by Drabinsky. Through that business relationship, Gill developed a friendship with Drabinsky, he told the court.

Gill approved Livent’s request to push invoices into a future period after he received assurances from either Gottlieb or former Livent chief operating officer Robert Topol that Livent would adhere to its contractual agreement to pay its bills within 60 days. “The reason I approved it was because they said it wouldn’t affect our cash flow,” Gill said.

Aside for changing date the invoices were issued, Livent executives never asked him to change the “content or the context” of the invoices, Gill said. “We would not have, and could not have done that. Our system would not allow it,” he told the court.

As time went on, Livent did have difficulty paying its weekly advertising bills, Gill said. On several occasions Gill had to negotiate payment plans with Gottlieb. But in the end, Livent always paid its bills and when it was late, Echo would charge the theatre company interest or other penalties, he said.

Gill told Brian Greenspan that Livent’s request to push its advertising invoices into a different period was not a surprising request. In an RCMP interview in 2001, Gill told police that it was a common practice. “We accommodate clients like this all the time,” Gill said in the transcript.

Despite the abbreviated and almost friendly cross-examination, Gill’s testimony may still cause some trouble at Gottlieb’s next family dinner. Greenspan asked Gill about the time in 1994 when he asked Gill to give his daughter a job. Gottlieb offered to pay half her salary in order to give her something to do before she started her studies at a design school, Greenspan said. “Actually, Myron paid the complete amount of his daughter’s salary, not just half,” he said.

David Roebuck, a lawyer representing Drabinsky, handled what is certainly the shortest cross-examination at the trial. He asked if Drabinsky asked people’s opinions at the meetings. He did, said Gill.

“And you found the meetings stimulating from a creative point of view?” Roebuck asked.

“Sometimes yes, and sometimes no,” Gill replied.

“And you enjoyed being there?” Roebuck continued.

“Sometimes yes, and sometimes no. I wouldn’t have kept going if I didn’t,” Gill said.

The trial resumes next Monday with testimony from Paul Coort, a forensic accountant who works with the RCMP.

Lawyers speculated that Craib could have been caught in transit delays that snared subway passengers in Toronto earlier this morning. But when he didn’t show up by 11:30, there was talk about dispatching a police cruiser to his home to see if he was all right.

An apologetic Craib finally arrived after lunch. He explained that yesterday, he had been confused about the start time for court today after lawyers had suggested moving times to accommodate a medical appointment for one of the prosecutors. That idea was quickly shelved and the judge clearly explained to Craib that the trial would start on time before court disbanded. But it was a direction apparently lost on Craib.

The judge was not pleased and scolded Craib: “Leaving aside the issue as to whether there was scope for misunderstanding, the financial, emotional and other costs of the trial are enormous,”said Madam Justice Mary Lou Benotto. “The size of this courtroom is enormous and we are not able to do anything without your attendance.”

Ironically, Craib’s confusion over start times has been a major focus for defence lawyers. A good part of their cross-examination has been spent grilling Craib about the exact start time of the now infamous April 24, 1998 executive meeting where Craib says he say Drabinsky and Gordon Eckstein, Livent’s former vice-president of finance and administration, openly discussed plans to manipulate the company’s first quarter financial statements.

Craib says the meeting started at 2 p.m. But that’s impossible since, at the time, Drabinsky was flying back from Washington and did not get back into Livent’s office until much later in the afternoon. Craib says he was merely confused about the time, but defence lawyers insist that Craib concocted the meeting as part of a plan he cooked up with his Maria Messina, Livent’s former chief financial officer, to frame Drabinsky and Gottlieb.

As a result of Craib’s tardiness, there was very little time to actually question Craib today. But Brian Greenspan, the defence lawyer representing Gottlieb, still found time to grill Craib about those discrepancies between the audiotape of his interview with Stikeman Elliot lawyers and a transcript of that interview that Greenspan highlighted yesterday; the indemnity agreement he signed with Livent in which he agreed to cooperate with their investigation in return for immunity from prosecution or civil action and an incident where he consulted a lawyer in an attempt to stop Eckstein from harassing him at work.

Before going to the lawyer, Craib and Messina met with Gottlieb to see if he could intercede on his behalf. Greenspan asked Craib why he would turn to the man he believes was responsible for accounting fraud at Livent for help in dealing with Eckstein.

“Let me get this straight,” Greenspan said. “You are cowering in a corner, fearful of all the terrible things that are going to befall you and you go to one of the evil-doers for wise counsel and you go to a lawyer for advice on Gordon Eckstein.”

“Yes,” replied Craib.

Prosecutor Alex Hrybinsky returned to that quote later during his brief re-examination of the witness and asked him if “cowering in the corner” was an accurate depiction of his time at Livent. Craib said it was not. And then, after six days on the witness stand and five days under intense cross-examination, he began to break down.

“There was always this undertow in your life and you just….” Craib’s voice trailed off and he began to choke back tears. “At various stages you have some fortitude and you tried to do something to address it. But ultimately you failed.”

But Craib’s time on the witness stand is still not over. A problem arose last week when prosecutors could not locate the original version of notes Craib says he took during that April 24 meeting. Searches by Stikeman and Craib’s lawyers were unsuccessful. However, the document was finally found in the files of the U.S. Justice Department. The document was actually delivered to the courtroom by Federal Express yesterday and opened in the presence of both prosecutors and defence lawyers.

But with the original document now in evidence, Eddie Greenspan has asked for the chance to ask Craib questions about that document. As a result, Craib will return to the witness box tomorrow morning.

And not just any lie, but a carefully crafted pack of lies concocted with Maria Messina, Livent’s former chief financial officer, in an effort to frame Drabinsky and co-defendant Myron Gottlieb, for the alleged massive fraud that ultimately destroyed the theatre company.

For four days, Greenspan peppered Craib with a series of blistering questions about his account of a key April 24, 1998 meeting where the chartered accountant says he witnessed Drabinsky and Gordon Eckstein, Livent’s former vice-president of finance and administration, allegedly openly discussing a plan to manipulate the company’s first quarter financial results. It’s a meeting that Greenspan insists never occurred.

Craib originally told investigators and regulators that the meeting occurred at 2 p.m. But Greenspan contends that Drabinsky could not have attended a meeting at that time since he was in Washington attending a lunch with then-U.S. president Bill Clinton.

On Dec. 19, 2001, Craib sent an e-mail to Messina asking if she had access to any information that would support his testimony that Drabinsky had attended the 2 p.m. meeting. In the e-mail, which Greenspan read aloud in court, Craib asks if there are corporate records showing when Livent’s corporate jet landed; when Drabinsky cleared Canadian customs; or the driving records for [Ian] Sheppard, Drabinsky’s personal chauffer; or receipts from the Highway 407 Express Toll Road. The message shows that Craib was trying to ascertain whether other evidence would contradict his story about the 2 p.m. meeting, Greenspan said.

“I’m going to suggest to you that this e-mail shows one thing: that you were working with Ms. Messina to find out if you will be trapped by objective evidence if you stick with your April 24 story,” Greenspan said. “Isn’t that what this is about?”

“No,” Craib replied.

Craib said he did not recall writing the e-mail, nor did he remember what Messina responded. He wrote the e-mail around the time he was being questioned as part of a civil lawsuit launched by Drabinsky and Gottlieb. Lawyers for the founders had pressed him for details on his recollection of the timing of the meeting.

“You’re asking for evidence to support your story,” Greenspan said.

“I’m asking if I had the time right or wrong,” Craib replied.

Craib insists that he did in fact attend that fateful meeting with Drabinsky and Eckstein, although he concedes that his estimate of the time the meeting started was wrong.

“You have become concerned because you have been caught in a web of your own lies,” Greenspan said.

Flight records of Livent’s corporate jet show Drabinsky left Toronto to fly to Washington at 10:57 a.m. The flight returned at 3:30 p.m. and received telephone clearance from Canadian customs at 3:35 p.m. Drabinsky exited the plane shortly thereafter and left the airport in his limo sometime between 3:45 and 3:50. As a result, Drabinsky would not have been in the Livent’s downtown Toronto offices until at least 4:45 p.m., Greenspan said.

Those records, which prosecutors are not disputing, flies in the face of Craib’s previous testimony about the timing of the meeting, Greenspan said.

“I’m going to suggest to you that makes you a liar about the meeting with Garth Drabinsky,” Greenspan said.

“Or my recollection is confused as to the events,” Craib replied.

“When, when did you have this meeting? At midnight?” Greenspan shot back.

“No, the meeting was not in the dark,” he replied.

“I’m going to suggest to you that the only person who is in the dark is you,” Greenspan shot back.

Tomorrow Craib will face questions from Brian Greenspan, the lawyer representing Myron Gottlieb.

Fiorino used the words to describe a plan to transfer more than US$10 million in pre-production expenses and running costs into accounts associated with the construction of Livent’s theatre in New York in 1998. Fiorino, a chartered accountant who also holds an MBA degree from York University, testified that the transfers were improper and had the immediate effect of reducing Livent’s expenses and thus boosting its bottom line.

Fiorino testified that he first learned about the transfers in 1997 when he compared the construction budget for what would eventually be called the Ford Theatre in New York with the actual expenses incurred in the construction of the theatre. Those expenses were much higher than Fiorino expected and a little digging soon uncovered about $2 million in production expenses that had been transferred into the construction accounts by Grant Malcolm – another Livent accountant.

Fiorino confronted Malcolm who told him he was acting on instructions from Gordon Eckstein, Livent’s senior vice president of finance and administration. When Fiorino demanded an explanation from Eckstein he was told that pre-production costs for the musical Ragtime were getting too high and “they” wanted to offload the costs. When prosecutor Amanda Rubaszek asked Fiorino who “they” were, Fiorino replied Livent’s senior management – Garth Drabinsky and Myron Gottlieb.

Not surprising, the defence objected strenuously to the hearsay evidence. In later testimony Fiorino said that Eckstein did not mention any specific names to him and that he merely understood “they” to be Drabinsky and Gottlieb.

Many of the costs transferred were from a company called F&D Scene – a company that constructed sets and staging for Ragtime. (It’s also a company in which Livent owned a minority ownership stake – although prosecutors did not ask Fiorino about that. * see note below)

The next instance occurred in the February of 1998 when Malcolm told Fiorino that he was going to transfer another US$10 million in production costs and expenses into theatre construction accounts. “I was dumbfounded,” Fiorino told the court. “I just looked at Grant and said, ‘You’ve got to be kidding.’”

He wasn’t. Malcolm told Fiorino a large portion of the expenses would be related to advertising and that it would be up to Fiorino to figure out where best to hide them. “[Grant] came up with the detailed list of invoices and he would transfer it into the theatre construction program,” Fiorino said. “It was up to me then to distribute those costs into the theatre construction accounts.”

A day or two later, Fiorino testified that he confronted Eckstein about the plan – a meeting that quickly turned into a yelling match, Fiorino testified. “Usually Gordon Eckstein did most of the yelling,” Fiorino testified. “This time I was yelling back, which was not usual.”

Fiorino complained that the transfers were “totally ridiculous and absurd,” he told the court. “It wouldn’t pass audit scrutiny,” he said. “Advertising costs have nothing to do with bricks and mortar.”

But the look on Eckstein’s face showed he was “resigned” to the manipulations and ordered Fiorino to go through with the plan. “From the expression on his face, he knew this transaction was absurd,” Fiorino said. “He said, ‘It is what it is. If the auditors find it, it will be up to Garth and Myron to justify it.’” But the auditors never did catch on to the transfers.
Later, in the first quarter of 1998, Eckstein ordered another $3-$4 million in transfers, Fiorino testified.

Rubaszek showed Fiorino dozens of pages from Livent’s general ledger that broke down the individual expenses that eventually comprised those millions of dollars buried in the company’s construction accounts. There were hundreds – if not thousands – of expenditures, some for hundreds of thousands of dollars, some – like the $25,000 for Livent’s corporate jet – were for less, while many others were for as little as a few hundred dollars.

The expenditures were allegedly transferred to theatre construction in New York, Chicago and in Toronto. In the case of Toronto, there was no actual construction going on at the time of the transfer, Fiorino said.

Fiorino processed the allegedly improper transfers by putting the transferred amounts into a series of “dummy accounts” with names like “specialty electrical” or “dressing rooms” or “orchestra pit” so he could keep allegedly illegitimate transferred amounts separate from the legitimate construction expenses, he told the court.

For his participation in the scheme, Fiorino was ultimately disciplined by the Institute of Chartered Accountants of Ontario and suspended for two years. He was also barred by the U.S. Securities and Exchange Commission from acting as an accountant with any SEC registered company for three years.

Fiorino also testified extensively about a scheme Livent used to boost sagging ticket sales at its Los Angeles production of Ragtime in 1997. The company funneled nearly $1.1 million in ticket purchases through its construction vendors Kofman Engineering and Execway – another construction firm employed by Livent. More than $381,000 in tickets was purchased by Peter Kofman, the founder of Kofman Engineering, while an additional $688,000 in tickets were purchased by Execway. Kofman has already testified that many of the purchases were made (sometimes without his knowledge or approval) with his personal American Express credit card.

At the beginning of the scheme, Fiorino was instructed by Eckstein to hide more than $432,000 in ticket purchases in Livent’s construction accounts. Both Execway and Kofman submitted bogus invoices for work that was never done in order to get reimbursed for the tickets. Those invoices were paid within 24 to 48 hours while other legitimate construction expenses were paid typically paid within 30 to 90 days, he testified.

To ensure that Kofman was paid quickly for the tickets, Fiorino testified that he often hand-delivered the cheques to Eckstein and Gottlieb for their signatures. When he delivered the cheques to Gottlieb, Fiorino testified that he told the Livent exeutive that they had to be signed quickly because they were “for Kofman’s ticket purchases.” Fiorino testified that he never talked to Gottlieb about how the expenses were ultimately booked, but when he started to make a point about the cheques and Gottlieb’s knowledge of the scheme he was quickly cut off when defence lawyers objected.

Brian Greenspan, the lawyer representing Gottlieb, has insisted that Gottlieb knew nothing of the scheme and signed hundreds of Livent cheques every week as a matter of course. When Gottlieb eventually found out about the ticket scheme, he insisted that the ticket sales be properly accounted on the company’s books, Greenspan suggested earlier in the trial.

And sure enough, the later cheques that Kofman and Execway received as compensation came from Livent’s Ragtime account (heck there was even a Ragtime logo on the cheques). And more than US$688,000 in ticket sales were booked legitimately through the theatre’s box office.

But when Fiorino delivered the earlier cheques to Gottlieb – the ones that were allegedly improperly buried on Livent’s construction accounts – they were clearly not for ticket purchases. Attached to each of the cheques was the phony invoice for construction work as well as a description of the invoice attached to the cheque. Anyone even glancing at the cheques would see that they were not for ticket purchases at all. Was Fiorino going to point out that just by looking at the cheques, Gottlieb would have known there was something “ridiculous” or “absurd” going on? Maybe we will find out tomorrow when defence lawyers start their cross examination.

* Note: In the original blog post I mentioned that F&D Scene was a company in which Garth Drabinsky owned a minority ownership stake. This is not the case. Livent, not Drabinsky personally, held a minority interest in the set design and construction company. The post has been corrected.

Thunder punctuated Messina’s answers as Greenspan — the lawyer representing Drabinsky — grilled her about differences between her testimony and that of Gordon Eckstein, Livent’s former senior vice-president of finance. The biggest clap came as Greenspan quizzed Messina about the differences between Eckstein and Drabinsky’s penchant for verbally abusing Livent employees.

“You hated (Eckstein),” Greenspan said. “No, I wouldn’t use that word. He was pretty nasty. They don’t come much worse in a professional environment,” Messina said as thunder rolled through the courtroom.

Greenspan went on to quote Messina’s earlier testimony to the RCMP where she called Drabinsky a “creative genius,” and therefore cut him more slack when it came to his abusive behavior. “You respected him for what he was,” Greenspan suggested. “Initially, I did, yes,” Messina replied. Thunder rocked the room again.

But through his questions, Greenspan is trying to convince Justice Mary Lou Benotto that Messina’s previous testimony that Garth Drabinsky and Myron Gottlieb are the real architects of the fraud that ultimately destroyed Livent is the real fallacy. Drabinsky and Gottlieb have both pleaded not guilty and maintain the fraud — if there even was one — was committed by Eckstein without their knowledge or approval. Whether Benotto is buying Greenspan’s contention that Messina’ss testimony is a fallacy, or whether she thinks the lawyer’s acussations are merely pathetic is anyone’s guess.

In an effort to discredit both Messina and Eckstein, Greenspan highlighted differences between the testimonies of the two former Livent accountants. Eckstein has been described as an arrogant and tyrannical bully whose wild mood swings led many in the office to describe him as “Sybil,” after the character in the film of the same name who suffered from multiple personalities disorder. In his earlier testimony, Eckstein was accused of attempting to woo Messina by sending her flowers, switching her tickets to Livent shows so that she sat next to him and in contrast, throwing a clock at Messina in one violent outburst. Eckstein denied all the allegations, while Messina maintains they occured. “Mr. Eckstein swore to tell the truth and he said the clock incident never happened. You swore to tell the truth and you said it did,” Greenspan said. “Between the two of you someone is making it up.”

“I know it happened sir,” Messina replied.

Greenspan went further, calling Eckstein a “nut bar” and portrayed Messina as a liar when she testified that she hoped Eckstein would help to stop the alleged fraud. “I’m going to suggest to you that you are an outright liar,” Greenspan said. “It doesn’t make sense you placed all your hope on Mr. Eckstein, a man you couldn’t trust at all.”

Messina also changed her story when speaking to different bodies investigating the collapse of the theatre company, in an effort to downplay her own guilt and play up the guilt of Drabinsky and Gottlieb, Greenspan suggested. “You managed to spin a story so you had officials of a public company keeping you on as CFO where no responsible public company would keep you on.”

“They knew what I did,” Messina replied.

Messina ultimately blew the whistle on the accounting fraud at Livent in August, 1998, when she told new management at the company about millions of dollars in improperly recorded expenses and liabilities buried on the company’s balance sheet. The disclosure led to the firing of Drabinsky and Gottlieb, while Messina was kept on by new management until the U.S. SEC demanded she be fired as part of settlement with the regulator. Since then, Messina has earned about $s325,000 per year working Ernst and Young, the receiver handling the Livent bankruptcy, and Stikeman Elliot, the Toronto law firm currently suing Drabinsky, Gottlieb and former Livent auditors Deloitte and Touche.

Greenspan suggested that Livent managers continued to support her since she was going to be their main witness in the lawsuits. Greenspan referred to letters of support written by Livent managers Robert Webster, Roy Furman, and Stikeman Elliot lawyers that were filed in 2000 with the Institute of Chartered Accountants of Ontario as part of the disciplinary hearings against Messina. “It’s quite remarkable how many friends you have in high places,” Mr. Greenspan noted after reading from the letter. “You weaved a story to the company who knew you were going to be its star witness.”

Greenspan spent a considerable amount of time quizzing Messina, who worked as Livent’s auditor at Deloitte and Touche before joining the company in 1996, about why she did not tell her former accounting firm colleagues about the alleged fraud at Livent. It would have been easy to do since Messina was friends with — and had even dated — Aaron Glassman, a Deloitte accountant and former lead client services partner on the Livent account while she worked at Livent. “You could have told him during pillow talk,” Greenspan said.

Glassman testified at the Livent preliminary hearing that he dated Messina until November 1997 — a period when she was fully aware of the alleged Livent fraud. However, Messina maintained that Glassman misspoke and that their romantic relationship ended in September 1996, long before she knew about the fraud. “It is so obvious that I was dating Mr. Glassman in 1996, it was not possible that I was dating him in 1997,” Messina shot back. “I could have told him (about the fraud) but I didn’t. I wish I had.”

We could have used some thunder after that answer.

Messina may seem like a victim of the alleged Livent fraud who lost her job, was convicted of a felony in the U.S., disciplined by the Ontario accountants institute and has had to spend the last 10 years testifying in various Livent actions. But according to Greenspan, Messina is actually a lying, manipulative opportunist who has made a career out of legal persecution of Drabinsky and Gottlieb — and gotten rich doing it.

At least one part of that accusation is not in dispute. Since the collapse of Livent, Messina has earned about $325,000 a year as a consultant on the Livent case for Ernst & Young, the accounting firm overseeing the bankruptcy liquidation of Livent's assets, and the Toronto law firm of Stikeman Elliot. Stikeman is currently representing Livent in a $100 million Livent lawsuit against Drabinsky and Gottlieb and a second $400 million suit against former Livent auditors (and Messina employer) Deloitte and Touche.

In a sarcasm-laden voice, Greenspan accused Messina of making millions trying to convict the Livent founders. "For lawsuits and testifying against Garth Drabinsky and Myron Gottlieb you got nearly $3 million," Greenspan said. "You are in the Stikeman Elliot witness-protection program. The highest-paid witness in the country, three million dollars for a former CFO who pleaded guilty to a criminal charge."

"I am not in the witness-protection plan," Messina replied. "Oh, we'll see what you are in," Mr. Greenspan retorted. Her work on the Livent case even got her an office with a north-facing view in Stikeman's Commerce Court office in downtown Toronto, Greenspan added.

In 1996 Messina left her job as an auditor at Deloitte and Touche overseeing Livent's books to join Livent. She testified that she discovered the fraud a year later. After several unsuccessful attempts to stop the fraud from the inside, Messina testified that in August 1998 she told the new U.S. managers of Livent about the alleged financial wrongdoing at the company. Drabinsky and Gottlieb were ousted from Livent and the company collapsed a few months later. Both Drabinsky and Gottlieb have pleaded not guilty.

Greenspan's cross-examination of Messina was delayed by more than a week after David Roebuck, Drabinsky's lawyer in civil actions served a subpoena on Messina demanding every document in her possession relating to her recollection of her time at Livent. The subpoena had to be reworked since most of those documents were actually in the hands of Ernst and Young. In the end more than 26 binders of documents were turned over to defence lawyers. Those binders — packed into six banker boxes — were dramatically stacked up in front of the podium where Greenspan stood during his interrogation of Messina.

And those binders didn't even include the lengthy statements Messina has given to the SEC, U.S. prosecutors, the Ontario Securities Commission, the RCMP, the Institute of Chartered Accountants of Ontario, as well as transcripts of her testimony in civil lawsuits and during the lengthy preliminary hearing into the Livent case. All told, Messina has testified in various venues for more than 130 hours resulting in 4,704 pages of documents, Greenspan told the court.

The cross examination is expected to last several days as Greenspan highlights differences in testimony Messina has given over the past decade. In one lengthy episode Greenspan focused on testimony Messina gave to SEC investigators in September 1998, less than two months after she finally disclosed to new Livent managers that Drabinsky and Gottlieb had allegedly been cooking the theatre company's books for years. "You were a bald-faced liar with the SEC!" Greenspan shouted at the witness.

In the interview Messina told SEC lawyers that she first learned of the alleged Livent fraud during a discussion with former Livent accountants Grant Malcolm and Diane Winkfein in June or July 1997. At that meeting, the accountants told Messina that $5 to $7 million in liabilities had not been properly recorded in Livent's books. After a short break in the SEC interview, Messina came back and told investigators that was not correct and asked that the interview be terminated. It did not resume until the next day when Messina said that she did not actually learn about the fraud until much later.

That original account given to the SEC contrasts with Messina's earlier testimony to Livent prosecutors, Greenspan charged. In her testimony Messina said she learned of the fraud in July 1997 when former Livent accountant Gordon Eckstein went on vacation and she saw a draft of Livent's second quarter financial statements showing a staggering $15 to $20 million loss. But financial statements Livent filed with regulators, showed not a huge loss, but a modest profit. When Messina asked Winkfein what had happened, Winkfein replied that she does what Eckstein tells her.

Messina tried to explain that she was in a fragile state during her meeting with the SEC and that she had a difficult time segregating what she knew then with what she knew at the time. That meeting with Winkfein and Malcolm that she spoke of with the SEC was not when she discovered evidence of the fraud, but rather was a general discussion she had with the accountants about Livent's penchant for aggressive accounting. That meeting didn't set off any warning flags, because — at the time — she had no reason to suspect Livent's executives of any wrongdoing. "You've had 10 years to consider the debacle at the SEC and that is the best could come up with," Greenspan scoffed.

"I didn't have to figure it out, I knew exactly what had happened at Livent," Messina replied.

That was one of the few complete answers Messina managed to utter on the stand. Many of Messina's attempts to answer Greenspan's questions were either interrupted or shouted down by the lawyer. At one point, Greenspan even turned his back on the witness when she was trying to speak. "Can I finish my answer… This is very important for me," a clearly frustrated Messina asked. "This is very important for the liberty of Mr. Gottlieb and Mr. Drabinsky," Greenspan retorted. "Let me ask the questions. You will have ample time to deal with it."

Greenspan went on to suggest that perhaps Messina's lawyers had conducted secret meetings with the SEC after the interview was halted. Messina nixed that suggestion when she told the court that no such meeting could have taken place since she was with her lawyers until late in the evening and joined them early the next morning.

Greenspan later highlighted the differences between testimony she gave at her plea agreement before Judge — and now U.S. Attorney General — Michael Mukasey and pleadings made by her lawyer before a disciplinary panel of the Institute of Chartered Accountants of Ontario (ICAO). Messina told the U.S. judge that she had not been threatened into making her plea. However, her lawyer later told a disciplinary panel of the ICAO that the plea had been "extorted" as part of a plea bargain. There was no contradiction in the answers, replied Messina. She was guilty of the crime she was charged with, but she was told by U.S. prosecutors that if she did not plead guilty she would be charged alongside Drabinsky and Gottlieb.

In her second day of testimony at Drabinsky and Gottlieb's criminal fraud trial, the former Livent chief financial officer offered gripping testimony of a series of tense meetings where Messina says she finally gained the courage to stop participating in the fraud and inform new company managers representing former Hollywood super-agent Michael Ovitz.

In April 1998, before Livent had announced the Ovitz transaction, Messina learned company managers were planning to implement more than $20 million in accounting manipulations to its first quarter results. Messina testified she met with Myron Gottlieb on Saturday April 25th and told him she knew about the proposed manipulations and urged him to meet with Garth Drabinsky and reconsider the move, she testified. Gottlieb replied that it was "just income smoothing," and she shouldn't worry. "[Gottlieb] really didn't respond directly to my concern, other than he didn't see anything wrong with continuing this," Messina told the court.

She was so concerned that she hired her own lawyer who suggested she put something in writing. She wrote that the accounting adjustments being considered were not in accordance with accounting rules and she would not support them to either the new Ovitz managers or Livent's audit committee. "In my professional capacity as a chartered accountant and as chief financial officer for Livent Inc., I cannot support the judgments made by management in the preparation of the 1998 Q1 financial statements," Messina wrote.

Nervousness about writing the memo caused Messina's hands to shake so badly that she had to call Livent controller Chris Craib to type the memo for her. She waited until Sunday night – when no one was in the office – before hand-delivering copies of the memo to Gottlieb, Drabinsky and Livent's in-house lawyer Jerald Banks. "I was terrified, I did not know what their response would be," she testified.

And she had good reason to be worried. Later in the day, Messina testified Drabinsky's management style was "dictatorial" and "bullying." He would often fly into a rage and abusively, profanely and personally attack anyone whose work he didn't like. "No one wanted to make a mistake that would trigger his anger," she testified. "There was no way I was going to go up against them… I was afraid of what they would do to me."

Messina nervously waited in her office all day to hear a response from Gottlieb or Drabinsky. Only Banks came into her office to ask her questions on an unrelated matter. Just as he was leaving — almost as an afterthought, she said — he turned back and said he read and agreed with her memo. It was not until after 5 p.m. that Gottlieb summoned her to Drabinsky's office for a meeting. If Messina was uncomfortable with the proposed manipulations, Drabinsky allegedly asked Messina, then what number was she comfortable with the company reporting, Messina told the court. "I said, `Garth, this is not a negotiation. The number is what it's supposed to be,`" she testified.

In the end, Gottlieb and Drabinsky agreed to write down some of the allegedly fraudulent transactions and take an additional writedown that was being proposed by the Ovitz group. However, it wasn't long before the topic of fraudulent manipulations of the company's financials was back again, Messina said.

On June 29, 1998 Messina was asked by new Livent executive vice president Robert Webster to give him updated company financial performance and projections. But before she could hand over the documents that would have showed Livent reporting a loss of more than $13.2 million, she was instructed by Livent senior vice president finance, Gordon Eckstein, to run the figures past Drabinsky.

At 8:15 the next morning Messina met with an annoyed Drabinsky who demanded she make changes to the financials. "When Mr. Drabinsky saw it, he said to me, `these numbers are all fucked up. You don't know what the fuck you are doing. You can't show these to anyone,`" Messina told the court. "He said that the new guys don't understand the business, I have to teach them."

Drabinsky then proceeded to shave millions of expenses and add millions in revenue to the projections. In the end, the projected $13.2 million loss was cut in half to just $7 million. One of the adjustments was the addition of several million in sponsorship revenue — even though no revenue was expected for the period. When Messina warned Drabinsky she would have to tell the new managers about the changes, he told her that would cost at least one Livent employee his job and he threatened her. "Mr. Drabinsky said that if I knew what was good for me, I wouldn't discuss sponsorship with new management," she said.

And Drabinsky wasn't done making changes to the document. Before she could hand over the document to Webster, Drabinsky made even more changes to the financial projections that cut the now $7 million loss to just $200,000.

But Messina didn't heed Drabinsky's warnings and told her new bosses about the changes. The managers told her to pass financial data onto them directly and not to let Drabinsky vet any more financial data.

Webster asked Messina to put together what she felt were accurate financial data for Livent. She did, but still kept quiet about the how pervasive the alleged fraud at the company had become. "I didn't know how to handle it," she told the court. "I was waiting for a good time to tell them and there never was a good time."

But Messina testified she could no longer live with herself while keeping the fraud a secret. "How do you tell somebody that, when you are a chartered accountant?" she said. "I was also obviously going to be destroying my own life. And it affected a number of other people in the accounting department. It just took me several weeks to find the courage to do it."

That day was Aug. 6, 1998, a little more than a week after the new managers terminated the employment of Gordon Eckstein. Since Eckstein had been in charge of the company's fixed asset accounting, Webster asked Messina to give him an update on the company's Chicago theatre construction accounts — accounts where millions in improper expenses had been dumped over the years.

Messina and former Livent controller Tony Fiorino assembled a schedule that disclosed the allegedly fraudulent transactions in the accounts and waited to present them to Webster. Late in the afternoon, Messina called Webster to ask if she could talk to him about the accounts, but he said he was too busy. Messina told him this was important and he should make time. Minutes later, he was in Messina's office and the fraud was blown. "Needless to say Mr. Webster was quite shocked, quite taken aback," she said. "He asked if there is anything else he needed to know."

Messina and Fiorino told him there were millions more in fraudulent transactions riddled throughout the company's books but other people were involved and she would have to speak with them before involving them. Messina had a brief meeting with others from the accounting department who all agreed to come forward and speak with Webster. The group met in Webster's office where they spent the next several hours disclosing the millions in fraud the group had spent the past five years burying deep in Livent's books.

The next day, the group returned to the office not knowing what to expect, Messina testified. Livent's new managers asked them to give statements to lawyers brought in from the Toronto firm of Stikeman Elliot. Ominously, the managers asked if any of the accountants wanted to bring in their own lawyers. Messina testified that she called the lawyer she consulted with previously, but decided to proceed without one — as did the rest of the accounting staff. Three days later Drabinsky and Gottlieb were suspended by Livent.

Back on Aug. 7, just before Messina and the other Livent accounts made their statements about the alleged fraud, Webster spoke privately with Messina and warned her: "You know there are going to be ramifications to you personally," Messina told the court. He was right. Soon, Messina was facing criminal charges brought by the New York district attorney and securities regulation charges brought by the U.S. Securities and Exchange Commission. Messina has pled guilty to one count of filing false securities documents but has yet to be sentenced. The SEC complaints have been stayed. In 2000 she pled guilty to professional misconduct before the Institute of Chartered Accountants of Ontario and was fined $7,500 and had her licence suspended for two years.

Livent filed for bankruptcy protection in November 1998, but Messina remained employed as its chief financial officer until Dec. 14, 1998 when she was terminated as part of settlement deal with the SEC. In January 1999, she began working as a consultant with Stikeman Elliot in connection with the numerous lawsuits and bankruptcy filings associated with the case. She continues to work on the Livent case to this day.

In her first day of testimony in the criminal fraud trial of her former bosses and Livent founders, Garth Drabinsky and Myron Gottlieb, Messina testified about the day in July of 1997 when she first became aware of the widespread alleged manipulation of the company's financials.

Messina was not directly involved with preparing the company's financial statements until June 1997 when Gordon Eckstein, the company's senior vice president of finance, went on vacation. In compiling the company's second quarter financial report, Messina was "shocked" to learn that the company had suffered a substantial loss of between $15—20 million for the first six months of the year — a loss that was not reflected in the company's current public financial statements. "I was surprised by the magnitude of the loss," Messina told the court.

When Messina confronted Livent controller Diane Winkfein about the report: "She just kept her head down low and said, `We do whatever Gord tells us,`" Messina testified.

By the time Livent publicly reported its second quarter financials, that multi-million dollar loss had somehow transformed into a profit of between $7 and 8 million, Messina said. When she confronted Eckstein about the manipulations, he calmly told her not to worry, that the company was merely engaging in "income smoothing" — a common practice among publicly traded companies, Eckstein claimed. "He was very calm. He sat back in his chair, put his arms behind his head and his feet on the desk, and he said, `Maria, it's just income smoothing. Everybody does it,`" Messina testified.

When Ms. Messina asked him if Livent co-founders Garth Drabinsky and Myron Gottlieb were aware of the financial manipulations, Eckstein replied: "Where do you think this comes from?" Messina told the court.

The revelation that the company's books were full of falsehoods and manipulations paralyzed the chartered accountant, Messina testified. "I was completely numb. It was complete shock and disbelief," she told the court. "I panicked, and I was completely immobilized by fear."

Messina testified she did not know how to get out of the situation and did not have the courage to confront Drabinsky and Gottlieb and blow the whistle on the fraud. "I did not have the strength to go up against Mr. Drabinsky and Mr. Gottlieb," she testified. "They were men of money, power and influence. I was a nobody."

By August, Messina said she refused to present the company's financial to the company's board and audit committee. A refusal that did not sit well with Eckstein, who insisted she attend the meeting. "You're going to go," Eckstein told Messina. "You shut the fuck up and you let Myron [Gottlieb] and [Livent chief operating officer] Rob [Topol] do all the talking."

By the time it came to prepare the company's third quarter financials, it became clear that all of Livent's senior managers were intimately involved in the fraud. At one meeting with Gord Eckstein and the company's accounting staff, Eckstein dictated changes to the financial statements to transform the company's mounting financial losses into profits. None of the accounting changes were justified, she said. "They were baseless and completely arbitrary," Messina testified. It would not be the last time she used that phrase to describe the seemingly endless manipulations that company managers were making to the books.

Messina joined Livent in 1996 after working as an auditor on its books for the past four years. Messina testified Myron Gottlieb asked her to join the company on three other occasions before she finally accepted his job offer. Joining the company was a great opportunity to join a unique and glamorous company that would give her the opportunity to expand her skills in business, she testified. "It was a very exciting industry," she said.

But soon, Messina found herself consumed by the company's massive fraud. Shortly after leaning of Livent's allegedly cooked books, Eckstein told Messina to prepare financial statements for a meeting with Drabinsky, Gottlieb and Robert Topol that showed the company's real financial situation, the proposed accounting manipulations and the final fraudulent numbers Livent would report to investors. Eckstein became angry with her when she produced the report on two separate sheets — one with the company's real numbers and another with the alleged fraudulent numbers. "[Eckstein] said he wanted to make sure that Mr. Drabinsky saw everything so he couldn't turn around and say he didn't know what was going on."

When Eckstein presented Messina's report to Drabinsky, Gottlieb and Topol at the quarterly financial meeting, Drabinsky asked: "What's this?" Messina testified. "`It's the fucking real numbers,` Eckstein replied. [Drabinsky] just put his hand on the paper and slid it across the desk to the other side and went to the other statement."

How to best manipulate the financials of the company was openly discussed among the senior Livent officials, Messina testified. At one point, the executives debated how to explain the high pre-production costs that had been elevated above analysts expectations because they contained millions of dollars in inappropriate accounting adjustments. Allegedly Gottlieb suggested he could concoct a story that the analysts would believe, Messina testified. An argument arose when Drabinsky asked Topol if the analysts would buy the story. Topol said they wouldn't, but eventually agreed to adopt the fictional account into his own talking points with analysts.

But there appeared to be light at the end of the tunnel, Messina told the court. As the meeting progressed, Topol explained that the fraud had grown too large and could not continue, Messina said. The company would need to start recording the proper expenses and take a major writedown to account for the millions in misidentified expenses, she said. Drabinsky, however, said that he "couldn't worry about that now," there was no way he was going to consider such a massive writeoff — not since Livent had just sold investors US$125 million in bonds the previous week.

At subsequent meetings accounting manipulations were openly discussed by all members of senior management, Messina testified. Sometimes, Drabinsky didn't like the accounting manipulations suggested by Eckstein and would demand different financial engineering, she told the court. For instance, Drabinsky didn't want additional expenses buried in the accounts of Ragtime New York, for instance, and instead demanded they be put into a show like Fosse, that was not scheduled to open for some time.

Tensions at the theatre company began running extremely high and the workplace became increasingly abusive, Messina said. Not just because of the alleged fraud, but also because the company was burning through money at an alarming rate and had trouble paying their suppliers, creditors and other expenses, she told the court. "It was a very difficult time," she said. "There's nothing I can say to help anyone in this room understand the intensity of that experience. It was that extreme."

Messina, Eckstein and Topol began working on a plan to issue the writeoff in the fourth quarter. "I placed all my hope that they could make this happen and the fraud would be ended and taken care of once and for all," Messina testified.

And while the company did report a $27.5 million writedown in 1998, it had little to do with cleaning up Livent's books and more to do with making the company more attractive to former Hollywood super-agent Michael Ovitz who eventually bought a controlling stake in the company. When Myron Gottlieb proposed the writedown to board members, he wanted to make it contingent on the Ovitz investment. If the investment failed to come through, he wanted to reverse the writedown, a request that was rejected outright by Livent audit committee chairman Garfield Emerson.

Messina confirmed the notion, presented by Brian Greenspan — the defence lawyer representing Myron Gottlieb — that Gottlieb had a more "macro" understanding of Livent's affairs. However, she maintained that both Gottlieb and Drabinsky were well versed with everything that was happening at Livent and that both men had a sophisticated understanding of the company's books and the fraud that was used to manipulate the company's earnings.

And it would only get worst, testified Messina. In early 1998, the chartered accountant realized the alleged fraud was not limited to pushing expenses that should have been reported in the past into future periods, improper transfers between shows and just deleting expenses outright. Soon she learned that expenses were being buried into the company's fixed assets that would improperly inflate the value of the company's theatres and other assets. "For me it was very de-motivating, demoralizing," she said.

"The whole thing was a nightmare," she told the court.

Over the past week lawyers representing former Livent auditors Douglas Barrington, Claudio Russo and Anthony Power have been arguing before the Institute of Chartered Accountants of Ontario Appeals Committee that a ruling by the ICAO disciplinary panel last February erred in finding their clients guilty of professional misconduct.

The panel ruled that the accountants failed to exercise the required professional skepticism when they continued to rely on the representations of the company's senior managers even after company officials lied to them. "The auditors said that their skepticism was `sky high,`" the panel ruled last year. "However, with respect to the impugned conduct, the evidence disclosed that the auditors failed to exercise the professional skepticism required."

The panel could have thrown the men out of the accounting profession, but instead ordered the three receive written reprimands and pay fines and penalties of more than $1.25 million — the highest fine ever meted out by the Institute that oversees the professional conduct of Ontario's chartered accountants. Two of the Deloitte auditors — Douglas Barrington and Anthony Power — have retired. Only Claudio Russo remains employed with Deloitte.

The accountants were never charged with failing to detect the alleged massive fraud that ultimately destroyed the once high-flying theatre company. However, the appeal touches on some of the most contentious and important issues regarding how auditors deal with company managers, namely: just how much trust should accountants place in the representations of managements and how should auditors react once it has been proven that managers have lied to their auditors?

Besides a host of legal and procedural grounds, the appeal of the accountants essentially boils down to three main issues: first, the accountants were found guilty of conduct for misbehaviour that was not included in the original charges; second, that the panel ignored the evidence of experts who testified that the accountants did act appropriately and lastly, that the panel's finding that the auditors reach "a correct conclusion" in their audit work is incompatible with the legal definition of professional misconduct. The accountants are asking the panel to set aside the decision, as well as to strike down the fines levied against them.

Much of the evidence in the original disciplinary panel ruling, as well as the appeal, centres on how the Deloitte accountants dealt with the issue of a secret "Put Agreement" between Livent and Dundee Realty regarding redevelopment of the Pantages Theatre in Toronto that allowed Dundee to pull out of the project ahead of other investors. Livent managers told Deloitte the agreement had been cancelled since the agreement would disqualify Livent from booking any revenue associated with the project until a later time. However, Deloitte accountants auditing Dundee"s books learned the agreement had not been cancelled and was, in fact, still in place.

The accountants demanded letters of explanation from Livent co-founder Myron Gottlieb (who was also a member of the audit committee of Dundee Realty's parent company), and Dundee and Livent's outside lawyers. All three provided letters that said the agreement had already been cancelled. However, explanations as to when and how the agreement was dropped differed significantly. Those inconsistencies should have cast doubt on all of the assertions of Livent's managers and caused Deloitte to increase its scrutiny of the company, the panel ruled. "The auditors failed to consider the broader implications of the admitted deception, including the representations made by management throughout the audit," the panel said in their original ruling.

But considerations about the Dundee agreement should not have been used to determine professional misconduct since the original charges made no mention of it, lawyers for the accountants argue. "By making the Put Agreement, an aspect of the fraud and a matter that was not a subject of the Charges, `fundamentally important` to its decision the Panel materially changed the case against [the accountants] and unjustly denied them a fair hearing," lawyers for the accountants argue.

And even if the panel does choose to consider the impact of the Put Agreement, there is not enough evidence to prove that the agreement was still in effect at the time of the audit, the lawyers contend. After all, there was no evidence that Livent managers were lying about the cancellation of the put and even a re-audit of Livent's books after the massive alleged fraud was uncovered, failed to determine once and for all whether the agreement was still in force or not.

Lawyers representing the ICAO's professional standards committee argue just the opposite. There was not enough evidence for the auditors to conclude the put was cancelled in the first place. The fact that accountants who re-audited the books after the fraud was discovered could not determine whether the Put Agreement was in force or not proves the original auditors did not have enough evidence to allow Livent to recognize the revenue in the first place. "The appellants did not have sufficient appropriate audit evidence to conclude that the representations of management were true," committee lawyers write (wrote?) in their response to the accountants' appeal. "Notwithstanding the lack of audit evidence they released their audit opinion based upon the representations of management."

The fact that managers lied should have caused a reasonable accountant to re-assess every decision made in the audit that was based on representations of management, professional committee lawyers say. "(They) did not revisit the representations of management as required by generally accepted standards of practice of the profession."

The put agreement was not included in the original charges because the accused accountants themselves introduced most of the evidence relating to the agreement hoping it would bolster their case that they were innocently duped by Livent's managers. However, the disciplinary committee saw it as evidence that the accountants failed to live up to their professional obligation and are entitled to consider the evidence in their decision, the professional standards committee says.

That failure to question management occurs again and again during the Livent audit when auditors accepted the verbal assurances of the company's senior managers regarding invoices that were booked to the company's fixed assets with no supporting documentation to a whopping $27.5 million write-off of pre-production costs that Livent managers insisted upon after the accountants had completed their work. "All of these facts should have heightened the level of concern of the auditors with respect to the veracity of management representations," the professional committee states.

It is interesting to note that while the Dundee Put Agreement is the mainstay of the ICAO's case against Deloitte, it is not mentioned once in the crown's criminal fraud charges against Drabinsky and Gottlieb. It appears, when it comes to Livent, there is enough alleged fraud to go around for everyone.

It could be several months before the ICAO appeal committee delivers its decision. Who knows, by then there may be a decision in the Livent criminal trial as well.

(Note: A previous blog post suggested that ICAO fines could only be collected from current members of the Institute. This is not the case. In fact, fines may be filed and collected through the Ontario court. The post has been corrected.)

Greenspan made the comments during his first day of cross-examination of Gordon Eckstein, Livent's former senior vice president of finance and administration. Eckstein has been on the stand for the past three weeks painstakingly recounting how he — at Gottlieb and Drabinsky's insistence — cooked Livent's books to bury the company's mounting losses and make it appear profitable.

Gottlieb would often fall asleep during meetings, Greenspan suggested. "He was notorious around Livent that half the time that Mr. Gottlieb would be in a meeting, he'd be asleep." Eckstein testified that was an "exaggeration" but conceded there were times when Gottlieb appeared to fall asleep during meetings.

Gottlieb had only a "macro" understanding of the company's operations, insisted Greenspan. And when issues of accounting or finance came up, it was his practice to seek outside opinions for the best ways to deal with them, Greenspan suggested.

Eckstein disagreed with Greenspan's portrait of Gottlieb as a hapless member of Livent's senior management team. While Gottlieb did not have detailed day-to-day knowledge of the intricate workings of the company's theatre productions, he did indeed have a sophisticated knowledge of accounting, understood the company's affairs and was an active participant at Livent's quarterly financial meetings where the myriad of alleged accounting manipulations were discussed. "I had daily interactions with Mr. Gottlieb" Eckstein testified. "He had far more understanding than just at a macro level."

Greenspan showed numerous key company documents in which more than a dozen Livent executives received copies, but Gottlieb was not included in the circulation list. As well, he introduced a memo from former company chief operating officer Robert Topol and copied to Eckstein asking for answers to questions posed from a financial analyst who covered Livent's stock. Despite the fact that keeping contact with stock analysts was part of Gottlieb's job description, he was not asked for input on the questions, Greenspan pointed out. "He could have answered some of those questions," Eckstein replied.

Greenspan also cited testimony from former Livent controller Tony Fiorino who told investigators that he had never received any direct accounting instructions from Drabinsky or Gottlieb and said neither men could book an accounting entry "if their lives depended on it."

Greenspan confronted Eckstein with comments made by Fiorino to investigators in which he said that Eckstein said he was the real "financial brains of the company," and acted as if he was "omnipotent and untouchable." Eckstein often shut down any discussion about how to properly account for items, telling Fiorino: "don't think, just fucking do it."

Eckstein denied ever saying he was the real brains of the company, but agreed he did often shut down debates about the accounting treatment of items. "As the fraud got larger and larger, discussion as to how to deal with some of these things became less significant," he testified. "Discussion about how to do accounting became a moot point."

Eckstein's character continued to come under attack from Greenspan as he cited testimony from other Livent employees who described Eckstein as abusive to staff and often told staff that it was only because of "his financial genius" that the company remained afloat. He also often referred to Drabinsky and Gottlieb as "fuckheads, shitheads or idiots." Eckstein replied that he didn't recall using those words and only denigrated senior Livent managers in connection to the fraud. "Anybody could have done what I did. There wasn't any financial genius to it," Eckstein testified. "I was just relating what management wanted to the (accounting) staff. Anybody could have committed the fraud I did — any accountant."

His abusive behavior came from increasing frustration over the fraud and with the company's fragile financial situation where an increasing amount of money was being spent on private airplanes, corporate apartments and company cars, Eckstein insisted. "It was a mess and I knew it was going to explode," he testified.

Eckstein spent nearly four days on the witness stand telling prosecutors about how Livent founders Garth Drabinsky and Myron Gottlieb were the masterminds of an alleged massive accounting scam that stretched back to the theatre company's earliest days. But Greenspan has spent much of the past week picking at inconsistencies in Eckstein's testimony in an effort to suggest that Eckstein is the real architect of the fraud that eventually destroyed the company.

Greenspan has focused his attack on one specific period — four days in April of 1997 — when Livent was finalizing its first quarter financial results. During that period, the company transformed more than $13 million in losses into $5 million in profits through a serious of inappropriate accounting adjustments, Eckstein testified.

In earlier testimony, Eckstein told the court that he was instructed to put together proposed accounting adjustments to bring the company's financial results as close to budget as possible and then review those proposed manipulations with Drabinsky and Gottlieb during the company's quarterly financial meetings. Only after the senior executives approved the allegedly inappropriate adjustments would Eckstein instruct his staff to go about cooking the company's books.

Greenspan got Eckstein to concede that the meeting must have taken place sometime between April 24, when a document with Eckstein's handwriting outlining potential accounting manipulations was produced, and April 27 when those improper financial manipulations were entered into the company's computerized accounting program.

There's just one problem: neither Drabinsky nor Gottlieb were in Toronto to attend a meeting during a period when Eckstein says the men approved the manipulation of the company's books. "I’m going to suggest to you that you never met at all in connection with this," Greenspan said. "You inputted all of the manipulations and there was no meeting."

"That's not true, we always met," Eckstein testified. "We always met at the quarterlies."

Greenspan acted with incredulity when Eckstein suggested that — since it was impossible for the meeting to have taken place at Livent's offices in Toronto — he may have flown down to New York for the meeting. "I suggest to you that you just made that up," he said.

Now, were Eckstein's answers untruthful when it came to the details of the meeting, or is it even reasonable to expect someone to remember the details of a single meeting held more than a decade ago? Your opinion and $1.79 will get you a cup of coffee from the Starbucks down the street from the University Avenue courthouse where the trial is being held. Ultimately, that is what the Madam Justice Mary Lou Benotto will have to decide.

The confrontation was similar to one Greenspan made on Wednesday regarding the preparation of Livent's first quarter 1998 financial statements. Drabinsky could not attended a meeting to approve accounting manipulations during that period since he (and his "mistress") were in Washington at the time having their picture taken with then president Bill Clinton.

Eckstein insisted that the meetings did indeed take place and refused to budge when Greenspan suggested that Drabinsky's absence suggested that Eckstein had done the manipulations without the approval of Livent's senior managers.

Greenspan also questioned Eckstein about why Drabinsky and Gottlieb would have allowed accountants from KPMG representing former Hollywood super-agent Michael Ovitz to pore over Livent's books if he was aware of the widespread accounting fraud. "This should have been his worst nightmare?" Greenspan said. "I suggest to you that Mr. Drabinsky wasn't worried because he had no idea where you were booking these things… You were on a frolic of your own."

"That's totally incorrect," Eckstein replied. Drabinsky and Gottlieb weren't worried about auditors — after all, they had been fooling Deloitte and Touche for years, he said.

If Livent was the criminal enterprise that Eckstein suggested it was certainly a strange one, Greenspan suggested. After all, they didn't tip Eckstein off about the pending Ovitz transaction that could have given him time to prepare to hide the company's losses and they even fired one of their alleged co-conspirators — Robert Topol — after they discovered he was stealing from the company. "It's got to be a strange way to run a conspiracy," Greenspan said.

Strange indeed. But whether or not the inconsistencies and questions raised by Greenspan are enough to convince Madam Justice Mary Lou Benotto to disregard Eckstein's previous testimony has yet to be seen. Edward Greenspan told the court he will wrap up his cross-examination on Monday and turn the witness over to Brian Greenspan.

But the photo prompted some other information that Greenspan was clearly not expecting. When he asked Eckstein about the woman in the photo, Eckstein blurted out: "That's Mr. Drabinsky's mistress." You could have heard a pin drop in the courtroom — or rather you could have heard the loud scratching of pens as reporters started furiously taking notes.

"Why would you say that?" Greenspan asked.

"He was married at the time," Eckstein said.

Drabinsky was separated, Greenspan told the court, to which Eckstein replied: "Not at the time he started seeing her." He went on to say that the woman had been the cause of much discussion at Livent. Drabinsky allegedly met the woman in Hawaii and eventually moved her into one of the three corporate apartments Livent maintained. Furthermore, Eckstein added, Drabinsky insisted that the company pay to have the room where she was staying renovated.

"Do you enjoy the opportunity to take a shot at Mr. Drabinsky?" Greenspan asked.

"You asked me a question, I'm just speaking the truth," Eckstein replied.

Greenspan, apparently, had the good sense to quickly move on.