OSC weighs ban on fraudster
Securities panel opens curtains on latest Drabinsky proceeding
TORONTO — The Ontario Securities Commission has begun hearings on whether theatre impresario and convicted fraudster Garth Drabinsky should be banned from capital markets because of his role in the Livent Inc. accounting scandal of the 1990s.
The hearings before the three-member OSC panel, led by commission vice-chair Grant Vingoe, began Wednesday and are scheduled to run until next Tuesday, with counsel to reappear on March 10 for closing arguments.
The sole issue is whether it’s in the public interest for Canada’s largest provincial securities regulator to kick the legendary theatre producer out of the capital markets business.
Drabinsky’s conduct is not in dispute. He was convicted of two counts of criminal fraud in 2009.
An Ontario trial judge found that Drabinsky arranged for financial statements to mask a kickback scheme ahead of Livent’s 1993 initial public offering. The judge also found that Drabinsky directed Livent to issue financial statements that falsely overstated the company’s financial health while it was raising about $500 million from investors.
Drabinsky was sentenced to six years in jail and was released on parole in 2012.
A provision of Ontario’s Securities Act, section 127(10), gives the provincial regulator the power to adopt the findings of another regulator or a criminal court, then make orders in the “public interest” to protect both investors and the integrity of capital markets. OSC staff want the panel to slap Drabinsky with a lifetime ban that would prevent him from serving as an officer, director or promoter of a company regulated under Ontario securities law.
“Mr. Drabinsky is not the victim in this proceeding. Participation in the Ontario capital markets is a privilege, not a right,” said Pamela Foy, counsel for the OSC, during opening submissions on Wednesday.
The OSC’s case is simple. Commission counsel have presented the panel with Justice Mary Lou Benotto’s trial ruling from 2009 and an Ontario Court of Appeal decision from 2011 that upheld his conviction but slightly reduced his sentence.
Drabinsky is not challenging the facts found in the criminal rulings, but is fighting the complete capital markets ban sought by OSC staff. His lawyer, Richard Shekter, said in a brief reply Wednesday that the OSC’s request is “enormous overkill” because it would effectively prevent his client from continuing to work in the entertainment business. “He will never put on another show.”
Shekter expects to call several prominent business people as witnesses, among them Royal Bank of Canada director Geoff Beattie and entertainment executive Richard Stursberg. The evidence will explain how the panel could grant Drabinsky a limited “carve out” that will enable him to participate in his family business and in operations in which he has an arm’s length relationship.
Drabinksy, who was present Wednesday, is still involved in the theatre business. His latest production, Sousatzka, opens for previews in Toronto this weekend.
“He served hard time and it was a sobering experience. He has not only learned his lesson, he has turned it around,” Shekter told the panel.
The Livent fraud scandal has become the theatre production company’s longest running tragedy.
The OSC first issued a statement of allegations against Livent Inc. and several of its executives, including Drabinsky and cofounder Myron Gottlieb, back in July 2001. The proceedings before the securities regulator were delayed so criminal proceedings against Drabinsky and Gottlieb could run their course.
Gottlieb was also convicted of fraud in 2009. He was sentenced to four years in jail and released on parole in 2012. Gottlieb settled the OSC case against him in 2014.
The OSC case isn’t the final act in the Livent saga. On Feb. 15, the Supreme Court of Canada heard oral arguments in an appeal of a civil judgment in which auditor Deloitte & Touche was ordered to pay $85 million to the receivers of Livent, which petitioned for bankruptcy in 1998. In 2014, an Ontario trial judge found the accounting firm was negligent because it failed to detect fraud at the company.