Livent Inc. founders Garth Drabinsky and Myron Gottlieb overstated revenue, falsified records and misrepresented the now-defunct Canadian entertainment company's finances, Canada's top securities regulator alleged.
The allegations laid out Tuesday by the Ontario Securities Commission include charges that Livent disguised loans as sales in transactions involving Dundee Realty Corp., American Artists Inc. and a unit of Canadian Imperial Bank of Commerce, the country's No. 3 bank. Former Livent executives Gordon Eckstein and Robert Topol also were named in the allegations.
The commission will meet Sept. 11 in Toronto to set a date for a full hearing that could lead to lifetime trading bans for Livent, Drabinsky, Gottlieb, Eckstein and Topol, commission spokesman Frank Switzer said. The men also could be prohibited from serving as corporate directors.
Hollywood agent Michael Ovitz, who invested in Livent in 1998, filed a $36.2-million suit last month against Drabinsky and Gottlieb to counter claims that he was partly to blame for the company's demise. Ovitz, who agreed to buy a $20-million stake in April 1998, has alleged he discovered accounting fraud.
Ovitz gained control of the company in June 1998, and Livent filed for bankruptcy protection that November.
In one of the transactions discussed in the allegations, Livent said it sold the British production rights to the plays "Show Boat" and "Ragtime" for $3 million to CIBC Wood Gundy in 1997. Gottlieb told the Toronto-based bank Livent would repurchase the rights within months and pay "some additional increment," investigators allege.
Such so-called side deals attached to the transactions required Livent or its affiliates to reacquire the assets or to make payments comparable to the amount received by Livent on the asset sales, the commission said.
Investigators accuse Livent of modifying its accounting computer system to allow changes to general ledger entries that would leave no audit trail, of maintaining separate accounting documents to keep track of actual results that differed from results released to the public, and of directing accounting staff to manipulate Livent's books to improve "the presentation" of its financial results.
In November 1998, Livent publicly released restated results for 1996 and 1997. The move resulted in the dismissal of Drabinsky and Gottlieb.