KPMG, Drabinsky settle Livent suit
Conflict-of-interest finding brings cash award
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KPMG acknowledged that it had breached its fiduciary duty to Drabinsky in agreeing to investigate the financial affairs of the theater company Livent, which Drabinsky co-founded.
Previously, KPMG had performed due diligence into Livent before Michael Ovitz bought into the company in July 1998. In addition, the company had been Drabinsky's personal accountant for more than two decades.
"This is a major victory," said one observer close to the case. "What you've got here is a connecting of the dots. The star witness has been tainted."
Smoking gun
For his part, Drabinsky showed his usual flair at a skillfully orchestrated press conference in Toronto in which he laid out what amounted to a smoking gun scenario against Ovitz with the following questions.
"If Michael Ovitz felt he was misled, why didn't he sue Livent for his money back?" Drabinsky asked reporters gathered at a downtown Toronto hotel.
As part of the settlement, sanctioned by an Ontario Superior Court of Justice, which dismisses Drabinsky's suit against KPMG and KPMG's countersuit without costs, KPMG is prohibited from taking part in any Livent investigation, "except under compulsion of law."
KPMG is also prohibited from disclosing any confidential information on Drabinsky or passing any of his personal accounting documents over to Livent. KPMG's counsel, Earl Cherniak, noted that the first condition formalizes KPMG's stepping away from the investigation, and that the company would not have shared any of Drabinsky's personal accounting information in any case.
In a press release KPMG cited "significant developments in the law regarding conflicts of interest in the accounting profession which arose subsequent to the events which gave rise to the claim by Mr. Drabinsky" and stated it had settled for undisclosed terms "to avoid the additional time and costs that would be incurred in taking the case through trial and potential appeals."
Moving on
"The most significant part of this settlement is, this lawsuit's out of KPMG's hair, it's out of Drabinsky's hair, and Drabinsky can now concentrate on his civil case," as well as his criminal problems in the U.S., Cherniak said.
Under indictment and accused of fraud in the United States, the embattled theater entrepreneur was dismissed from Livent in the wake of alleged financial irregularities discovered after Ovitz took control of the company in 1998.
The Securities and Exchange Commission brought civil charges against Drabinsky and co-founder Myron Gottlieb and the federal government is seeking to try the two in a criminal case. In addition, a $153 million civil suit has been filed by Livent, and Drabinsky is countersuing the company.
In Canada, the Royal Canadian Mounted Police is investigating the matter, but no charges have been filed.
