Accounting / Accountants, Canada, Theater

More Fall-Out From A Crooked Broadway Impresario/Lawyer

A nine-figure award is now being reviewed on appeal; who deserves the blame for this fraud?

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Canada View From Up North As for the rest
All of ’em crooks
Rooking their guests
And cooking the books
Seldom do you see
Honest men like me
A gent of good intent
Who’s content to be…

—M. Thénardier, Les Misérables

Some of you may recall the strange affair of disbarred Toronto lawyer Garth Drabinsky, a mystery, though much reported on, never fully explained. Garth was the head honcho of Livent, the premier theatre company in North America, which opened shows like Phantom of the Opera and Show Boat on grand stages across North America.

Garth was a big deal—maybe the most influential theatre impresario of the 1990’s. A Canadian lawyer turned Broadway king. So storybook-like…

…More like a fairy tale, actually, because it turned out Garth was more David Copperfield than Cameron Mackintosh. He and his partner Myron Gottlieb were convicted of fraud and sent to jail for raising hundreds of millions from investors through duplicitous financial statements.

The mystery never fully explained for me—why did a man of Garth’s stature cook the books? Why did he rook investors? Why wasn’t he a lawyer of good intent?

Greed? Ego? Fear of failure? Unless he pens a tell-all where he (truthfully) lays bare his soul, that mystery remains locked in him. Excuse me for a moment while I reach out directly to Garth. If you’re reading this, please write your autobiography. Enquiring minds want to know.

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I digress.

Livent, as an operating entity, shuffled off this mortal coil in 1998 when a new management company took over from Garth and discovered his fraud. Since that time Livent and its principals have been under near-constant fire. A decade after the crash, following convictions and appeals, Garth actually learned orange prison garb is not a fabulous look—even with sequins. And nearly two decades after getting caught with his hand in investors’ pockets, the fall-out from his spectacular crash continues.

In 2014, Justice Arthur Gans found accounting giant Deloitte liable for a majority of Livent’s losses. Deloitte was Livent’s auditor during the winter of its discontent. Justice Gans concluded the accounting firm could have prevented the fraud had it done its job properly. The judge found numerous red flags that Deloitte essentially ignored.

His Honour awarded Livent $118 million (including interest).

Of course, Deloitte appealed the ruling, because…of course it would. Last week, the Ontario Court of Appeal upheld the award against the accounting firm for the entire amount. It’s a really interesting judgement that traces the entire timeline of Livent’s sordid history. It’s amazing to me that, while audiences from Toronto, Broadway and beyond enjoyed the nightly magic of performances by the incomparable Colm Wilkinson and the amazing Donny Osmond, there was far more smoke and mirrors backstage to cover up the scandal.

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From a legal standpoint, I strongly suspect Deloitte will ask the Supreme Court to sit front row for a brilliant performance by its appellate lawyer, who will, in a stirring monologue, attempt to convince the Supremes that the Court of Appeal got it all wrong.

Indeed, there is actually quite a bit at stake here for auditors. The Livent judgement arguably increases the standard of care for them, which is good for society and bad, obviously, for insurance companies.

There is also the legal concept ex turpi causa non oritur actio, which essentially means you shouldn’t be allowed to sue someone for your own bad deeds. In this case, Deloitte argued that Livent caused its own damage through the illegal acts of its principals and, therefore, Deloitte shouldn’t be liable as a result.

I’m trying to wrap my head around Deloitte’s argument and I think it goes thusly: Garth and his crew of merry bandits were committing fraud and intentionally trying to hide their devious actions from us, so we shouldn’t be liable even though if we had done our job correctly we would have discovered Garth’s dirty schemes and stopped him before he could do more damage.

Sounds like the type of argument a high-powered litigator would make (with a straight face). “My Lords, ex turpi causa non oritur actio. I rest my case.”

To which the Court of Appeal replied, “Quid tu, fatuus?” (What are you, an idiot?). The Court of Appeal then reminded everyone it was actually Deloitte’s job to catch the very type of high-level management deception in which Garth engaged.

As mentioned, I am confident Deloitte will appeal to Canada’s highest court. And, I am confident the Supremes will hear the case—and not because there are important legal principles in play. No.

Face it, most of the crap the Supreme Court deals with is boring crap. Livent is Broadway. It’s sexy. Throw in a scandal. That’s scintillating. Screw the legal principles, our top judges need a little sizzle now and then.

And just looking at their pictures, I have a strong hunch a couple of our Supremes are wannabe song-and-dance men. I look at Chief Justice Beverley McLachlin and see a woman who wants to drops her robes, jump on stage and wow an audience with a Streisand-like rendition of “Memory” from Cats:

Memory
There’s a crowd in the courthouse
I take my place in the middle seat
And try not to doze
I remember the time when I was regular folk
Now all lawyers bow at my feet

I would pay to see that performance.

That’s the View From Up North. Have a great week.

Earlier: The View From Up North: Phantom Of The Opera Disbarred

Steve Dykstra is a Canadian-trained lawyer and legal recruiter. He is the President of Steven Dykstra Law Professional Corporation, a boutique corporate/commercial law firm located in the greater Toronto area. You can contact Steve at steve@stevendykstralaw.ca. You can also read his blog at stevendykstra.wordpress.com, follow him on Twitter (@Law_Think), or connect on LinkedIn (ca.linkedin.com/in/stevedykstra/).

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