Suspended Livent Exec Sues KPMG Over Investigation

Suspended Broadway theater impresario Garth Drabinsky on Wednesday sued KPMG Peat Marwick for $16.6 million, contending that the accounting firm is improperly investigating alleged financial misconduct during Drabinsky’s tenure as head of Toronto-based producer Livent Inc.

Drabinsky, who is seeking to stop KPMG’s probe, said in the lawsuit filed in Toronto that the firm has a conflict of interest in the investigation because it has been Drabinsky’s personal accounting firm for about two decades.

In addition, he argued that KPMG has a conflict because the company also worked for Michael Ovitz when the former Hollywood agent invested $20 million in the company in June, effectively giving Ovitz control.

As a result, Drabinsky alleges, KPMG is not “free of influences, interests or relationships which, objectively, would impair its professional objectivity when examining financial statements.” He also alleges the firm has a conflict of interest because of its “intimate knowledge” of Drabinsky’s financial affairs.

Finally, Drabinsky alleged that KPMG as part of its investigation has illegally seized some of his personal papers as well as papers that he should have a right to as a Livent director.

Drabinsky last month was suspended by Livent, a company he built into one of North America’s biggest and flashiest stage producers with such productions as “Ragtime” and “Showboat.”

Livent suspended Drabinsky and his longtime lieutenant, Myron Gottlieb, last month after a new Livent management team affiliated with Ovitz uncovered what they allege are major financial irregularities that will force the company to restate its earnings. Sources have said that one of the discoveries has been the keeping of two sets of books to mask problems. KPMG has been asked to review Livent’s finances under Drabinsky.

In a statement issued through KPMG’s Canadian arm, the accounting firm said the company’s hiring by Livent “is entirely appropriate, and is being conducted in an ethical and professional manner.” KPMG General Counsel Peter Sahagian added that Drabinsky initially raised no objection when KPMG was assigned to review the books last month.

“This action is completely without merit. KPMG categorically rejects and denies any allegations that the firm has performed its duties in an improper manner,” Sahagian said.

But Drabinsky alleges that KPMG’s appointment was not approved by Livent’s board of directors. A Livent spokesman said KPMG “has been conducting the investigation for more than a month, and it is proceeding on track with all deliberate speed. The company is confident that when this investigation is concluded, the results will speak for themselves.”