An Ontario court found that Drabinsky and Gottlieb had systematically doctored Livent's financial statements, and sentenced them to jail terms of several years for fraud and forgery.
[6] Livent pursued a three-pronged business model which Drabinsky referred to as 'reproduction, restoration, and origination':[4] In addition, Livent acquired several theatres, beginning in Toronto and expanding to Vancouver, Chicago, and, most notably, the Ford Center for the Performing Arts in New York City, the result of an ambitious 1998 project to construct a large new theatre to house the Ragtime on Broadway.
Livent amortized the pre-production costs of its musicals over a five-year period (as long as the production continued to run), rather than reporting them immediately.
[7] In 1994, Livent kept its Broadway production of Kiss of the Spider Woman open for several months after it had ceased to cover its weekly operating costs.
It was widely believed that this was done in order to delay reporting the production's loss on the company's balance sheet, though Drabinsky disputed this.
[7] On April 13, 1998, Garth Drabinsky stepped down as CEO,[10] and was replaced by Michael Ovitz, former president of the Walt Disney Company, who had spent US$20 million for a controlling stake of Livent.
[15] The ruling was upheld by the Ontario Court of Appeal in January 2016,[16][17][18] but in December 2017, the Supreme Court of Canada in Deloitte & Touche v Livent Inc (Receiver of) allowed an appeal in part, declaring that liability existed only in respect of Deloitte's negligence in conducting the audit for Livent's 1997 fiscal year, and accordingly reduced the amount of damages awarded to $40,425,000.
[23] On March 25, 2009, Drabinsky and Gottlieb were found guilty of fraud and forgery in Ontario Superior Court for misstating the company's financial statements between 1993 and 1998.
In December 2011, he was transferred to serve out his sentence at Beaver Creek Institution, a minimum security prison, located in Gravenhurst, Ontario,[31] and was released on day parole in February 2013.
[39] In February 2013, the OSC announced that proceedings were to be withdrawn against Livent and another party,[40] and that hearings would take place on March 19, 2013, in the remainder of the matter.
[41] Myron Gottlieb and Gordon Eckstein, who were other parties in the proceedings, subsequently entered into settlement agreements with the OSC in September 2014 and May 2015 respectively.