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Garth Drabinsky was sentenced to seven years in prison and his business partner Myron Gottlieb was sentenced to six years.
They were granted bail of $350,000 each pending appeal and were free later Wednesday. Drabinsky and Gottlieb must surrender their passports and not act as the director of any company.
The two moguls manipulated the income reported on the financial statements of their company Livent, behind such Canadian and Broadway theatre hits as The Phantom of the Opera, over nine years until the firm went bankrupt in 1998.
Ontario Superior Court Justice Mary Lou Benotto said the contributions Drabinsky, 63, and Gottlieb, 66, made to society must be taken into account. "But no one is above the law," she said. "No one gets to write his own rules."
The pair presided over a company "whose corporate culture was one of dishonesty," which Benotto said the court has a duty to denounce.
"Corporate fraud such as this results in tangible losses to employees, creditors and investors," Benotto said. "It also results in less tangible, but equally significant loss to society. It fosters cynicism. It erodes public confidence in financial markets."
Drabinsky and Gottlieb devised a kickback scheme that saw assets of Livent and its predecessor company overstated. They would move operating expenses from one period to another and apply the expenses of one show to another.
The duo was convicted of two counts each of fraud and one count of forgery, but Benotto stayed the forgery convictions Wednesday, saying the facts were the same as one of the fraud counts. Drabinsky was sentenced to four years on one fraud charge and seven years on the second, to be served concurrently. Gottlieb was handed four years on the first fraud count and six years on the second, to be served concurrently.
Gottlieb was responsible for Livent's finances, but Benotto said Drabinsky was "the main person in charge," and that Gottlieb was "caught in a wide net that was most likely meant for Mr. Drabinsky."
Edward Greenspan, Drabinsky's lawyer, and Brian Greenspan, Gottlieb's lawyer, both said little outside court except that appeals are in the works.
But inside the court, they had asked for house arrest, with community service that could include lectures at business and theatre schools.
Benotto said the men were not eligible for that because a "large-scale fraud" was carried out by people "in a position of trust" and affected confidence in the capital markets.
The judge said the appropriate sentence range for the crimes was five to eight years, and declined to sentence at the highest end because of mitigating factors. She cited the ongoing health problems resulting from Drabinsky's childhood polio. In the case of Gottlieb, the judge said he had lost his house and had been unable to work for 10 years. The judge acknowledged the argument of the defence that the men did not pocket money from the fraud to furnish lavish lifestyles.
While the dollar value of the fraud is not known, the investments made in the public company were more than $500 million.
-- The Canadian Press, Canwest News Service
Making them pay for financial sins
WAS the sentence a sign of the times? Some legal and business experts say they were surprised by the lengthy prison terms handed to Livent heavyweights Garth Drabinsky and Myron Gottlieb. Brenda Mallouk, professor at the Rotman School of Management, said she expected jail time but feels the judge was responding to the economic downturn and the climate of blame. "I understand why she did it, given what's going on in the world...."
"ö Bernie Madoff, the former financier who admitted swindling thousands of investors out of billions of dollars, was convicted of operating a Ponzi scheme that has been called the largest investor fraud ever committed by a single person. Federal prosecutors estimated losses of almost $65 billion. On June 29, he was sentenced to 150 years in prison.
"ö Montreal investment adviser Earl Jones was charged last month with four counts each of fraud and theft in connection with four former clients. Quebec's securities regulator alleges Jones swindled at least 50 investors out of at least $30 million in a possible Ponzi scheme.