Tyranny, fraud, abuse alleged
Livent suit blasts Drabinsky, Gottlied
Engco inflated its invoices, the suit charges, in addition to paying Drabinsky and Gottlieb some $2.5 million directly.
The suit also cites a memo presented to Drabinsky and Gottlieb, dated March 11, 1994, that reads "paid back to LECC RE: GHD & MIG" the total sum of $5,957,836. That sum compares with a total of $8.34 million that Livent reportedly paid Engco for "certain construction services" between May 1, 1991, and Jan. 31, 1994.
Another alleged fraud had to do with capitalizing expenses, as opposed to writing them off in total, as a means of diminishing reported losses.
Transfer of costs
For instance, referring to 1997 activities, the suit charges: "Drabinsky and Gottlieb caused the transfer of costs, expenses, or losses from some six different shows in 30 locations to three different fixed asset accounts in the total amounts of approximately $15,000,000."
The practice reportedly continued through the first quarter of 1998, in which $4.1 million in "costs, expenses or losses from two shows in 19 different locations" were allegedly transferred to "two different fixed asset accounts."
More fraud alleged
Another form of fraud reportedly occurred when "raw numbers" failed to meet levels that Drabinsky and Gottlieb "wanted to disclose to the public or for purposes of their bonuses." Here, the suit states, the defendants directed "that certain expenses and payables be backed out of the general ledger and simply not recorded."
In a similar fashion, the suit continues, expenses and losses of one show would be transferred "to the account of a different show that would not start its expense amortization in that period."
The suit acknowledges that this manipulation, which would delay an actual and accurate accounting, and certain others were achieved "with the assistance of a small inner circle of senior management."
'Tyrannical and abusive'
But it also deems the management style of Drabinsky "tyrannical and abusive," going so far as to charge that he "intimidated staff through profanity, abuse and derision."
Not everyone buckled, apparently, as the suit further alleges that Livent's senior VP of finance and administration obtained an employment agreement nominally dated Feb. 27, 1998.
"In fact," the suit states, "the 'agreement' was back-dated" from around June 1998. The alleged reason: "To try to keep his cooperation ... with respect to the books and record of Livent."
If the allegations are to be believed, the "all-pervasive hands-on management style" attributed to the defendants extended all the way to company credit cards.
Gottlieb, for example, is cited as having a personal account to which "all the points accumulated on credit cards for business travel by Livent employees would be transferred."
"Even after his suspension," the suit states, "Gottlieb attempted to redeem some 6,000,000 points for his personal benefit. These points alone had a value in excess of $100,000."
The suit also challenges an alleged "air rights sale" for $7.4 million that effectively fattened Livent's bottom line by that amount, "less certain expenses," in 1997.
In addition to air rights, however, the buying company, which embraced Gottlieb as both a director and a shareholder, allegedly received a "put" option that allowed it "to reverse the transaction after 1997 and be repaid all payments that [it] made to Livent."
Such an option, if exercised, could be construed as a creative but temporary borrowing of earnings.
