Livent Accounting Fraud

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Livent. Inc Overview

In the year 1979 Drabinsky and Myron Gottlieb decided to enter the show business world. These two young entrepreneurs were able to convince a well-known Toronto businessman to invest one million in “cinema complex”. Over the next several years Drabinsky and Gottlieb were successfully able to expand their company, while they convinced to gather up large sums for the development of multiscreen theaters complexes throughout Canada and the United states. By 1980 Cineplex Odeon controlled about Two thousand theaters, which made it the second largest theater chain in North America. With the company’s rapid expansion and increasing design for new theaters, it was necessary for Cineplex Odean to borrow massive amounts from bank and other lenders. An internal examination in 1989 uncovered irregularities in the company’s accounting record that washed out a large profit and resulted in Cineplex Odean reporting a significant loss for the year. With this Controversy of accounting irregularities Drabinsky and Gottlieb were forced to resign. Drabinsky and Gottlieb acquired the Pantages Theatre, which was a large live production theater in Toronto, as well as the Canadian right to certain Broadway plays during the negotiations that led to their departure from the company. Following a series of widely acclaimed production, the company was renamed Livent Inc, which was a Live theatrical entertainment company In Toronto, Ontario. Two years after when Livent went public, in 1995 after the approval from SEC, Livent’s stock began to sell on the NASDAQ stock exchange. By early 1998, Livent had owned five live production theaters in Canada and the United State including a major Broadway theater in New York. Livent had bagged more than 20 Tony Awards for the company’s productions of Ragtime, Show Boat, Fosse, Kiss of the spider woman and the phantom of the opera. Despite Drabinsky success; he was anything but disciplined in managing Livent’s finances. By 1998, Livent struggled the load of debt Drabinsky had incurred to finance the company’s lavish productions. In 1998, Roy Furman a Wall Street investment banker and a friend persuaded Drabinsky to accept investment from Michael Ovitz to alleviate Livent’s financial problem. After receiving clean bill of health of Livent’s accounting record with thorough inspection of KPMG, Ovitz became the company’s largest stockholder and took over control of the company. Furthermore, Ovitz became a member of company’s board and chairman of the board’s executive committee. Similarly Furman took over Drabinsky’s former titles. Drabinsky was given the titles of vice chairman and chief creative director where he monitored facets of Livent’s operations. In addition to demotion of Gottlieb to vice president position, Ovitz hired former KPMG audit partner Robert Webster as an executive vice president of the company, who had supervised KPMG’s due diligence investigation of Livent’s accounting records. Webster primary role was to monitor company’s accounting and finance functions for Ovitz’s new management team. After Webster joined Livent, he discovered that accounting staff including CFO Maria Messina was unwilling to share accounting matters with him because of the management style practiced by co-founder of Livent Drabinsky and Gottlieb. Ovitz’s new management quickly discovered that Livent’s balance statements had as much substance as one of the company’s stage settings and that the firm was in serious financial trouble. On November 18 and 19 , 1998 respectively Livent declared bankruptcy in the United State and Canada and New York authorities began pursuing Drabinsky and Gottlieb on fraud charges, since they were the mastermind on falsifying and manipulation of Livent’s financial situation to artificially increase company’s profit and dampen it’s cost. ( Drabinsky as man in charge received a sentence of seven...
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