U.S Attorney and SEC Await Drabinsky and Gottlieb's Next Move

News   U.S Attorney and SEC Await Drabinsky and Gottlieb's Next Move
 
Over a week after Garth Drabinsky and Myron Gottlieb were charged with 16 felony counts each by the U.S. Attorney's office and an accompanying civil suit by the U.S. Security Exchange Commission (SEC), both offices are still waiting for a response from the former founders of Livent. Herb Hadad of the U.S. Attorney's office said Drabinsky and Gottlieb, both charged with widespread accounting fraud, have not surrendered themselves or replied to the allegations.

Over a week after Garth Drabinsky and Myron Gottlieb were charged with 16 felony counts each by the U.S. Attorney's office and an accompanying civil suit by the U.S. Security Exchange Commission (SEC), both offices are still waiting for a response from the former founders of Livent. Herb Hadad of the U.S. Attorney's office said Drabinsky and Gottlieb, both charged with widespread accounting fraud, have not surrendered themselves or replied to the allegations.

A spokesperson for Edward Greenspan, Drabinsky's lawyer, said the impresario would make a decision by Friday or next Monday.

Given Drabinsky's seemingly cavalier behavior since he was ousted last summer from the company he helped create, it appears unlikely he would agree to the charges. In that case, both sides may have to grapple with the thorny issue of extradition. Drabinsky and Gottlieb are in Canada, and, though Livent has substantial American business concerns, the executives' lawyers may argue that Livent's troubles are a matter for the Royal Canadian Mounted Police, who are conducting their own investigation.

Hadad declined to discuss the issue of extradition. "We prefer they voluntarily surrender," he told Playbill On-Line. "In the event they don't, we will deal with that then." Hadad added that if Drabinsky and Gottlieb did, in fact, give themselves up, they would be arraigned by a judge, who would decide whether the duo would be held in custody or not. Each felony count facing the execs could bring five to ten years in prison and a fine of up to $250,000.

Paul Guerlock, an attorney working on the SEC's civil case, said the Livent executives have 30 days to reply to the commission's charges. Two other former Livent executives, Gordon Eckstein and Maria Messina, have already pleaded guilty to one count of criminal action. No date for sentencing has been set, said Hadad.

Meanwhile, the criminal and civil cases have meant more hard luck for Drabinsky. Magna International, which recently hired Drabinsky as a consultant, has severed its relationship with the embattled showman in the wake of the charges. Magna has asked Drabinsky to assist in the development of an entertainment complex to sit on 300 acres next to Santa Anita Park, which Magna owns. The project was to have included restaurants, retail outlets and an amusement village.

Magna is a publicly owned concern. The SEC is seeking to bar Drabinsky from ever serving as an officer in a public company again.

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When the SEC announced its case on Jan. 13, it painted Drabinsky and Gottlieb as "the architects of an accounting fraud designed to inflate earnings, revenues and assets reported by the company" during the period covering 1990-98 -- roughly the entirety of the Canadian theatrical producing company's existence. Seven other top Livent executives were also indicted.

The SEC charged that widespread fraud led Livent to submit at least 17 false filing with the SEC, reports that routinely and systematically overstated Livent's financial health. Drabinsky, Gottlieb and other executives are also variously accused of manipulated income and cash flow, insider trading and kickback schemes. According to Government papers, Drabinsky and Gottlieb collected $7 million in kickbacks. The executives accomplished this by having two contractors, Peter Kofman and Roy Wayment, submit bills for construction work that had never happened. When Livent paid these bills, the construction companies returned $7 million of the money to Drabinsky and Gottlieb. The two execs then pocketed the millions.

The two former Livent heads also reportedly instructed Kofman and Wayment to purchase $380,000 worth of tickets to Livent's production of Ragtime in order to make the Broadway-bound show look more successful than it was.

Drabinsky delivered a statement on Jan. 13 in which he accused Livent and its new management team, headed by Michael Ovitz and Roy Furman, of deliberate designs to "damage my reputation." He insisted on his innocence in the matter. He declined to take any questions.

Other executives named in the indictment are former Livent senior vice president Gordon Eckstein; former senior executive vice-president and CEO Robert Topol; former chief financial officer Maria Messina; former theatre controller Tony Fiorino; former senior production controller D. Grant Malcolm; former senior corporate controller Diane Winkfein; and former senior budgeting controller Christopher Craib.

"This case should send a strong message to officials of public companies that the SEC is on guard for companies that cook the books and when detected, we will take swift action," said SEC director of the division of enforcement, Richard H. Walker at a Jan. 13 press conference at the Office of the U.S. Attorney in Manhattan.

Drabinsky and Gottlieb were suspended last August and later dismissed when Livent's new management team uncovered evidence that they had participated in widespread accounting fraud. Since then, Livent has fallen on hard times, soliciting multi-million loans to cover daily operating costs, laying off hundreds of staffers and abandoning or canceling touring productions.

"We informed the SEC immediately upon the discovery last August of serious accounting irregularities at Livent," said a company spokesman. "The government's order makes clear where responsibility lies for this regrettable matter.... The company has said all along that the facts would speak for themselves and we believe that in the SEC's order they do."

The SEC is seeking civil fines from all the defendants except controller Craib and will attempt to permanently bar Drabinsky, Gottlieb, Topol and Eckstein from ever serving as officers or directors of a public company again.

-- By Robert Simonson

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