- The art of the Con
One of the Best Shows on Wall Street but It Closed Early
We have all heard of Livent by this time. You know
those lovable show business folks personified by Garth Drabinsky and Myron Gottlieb
who came down from Canada and told us that they were going to revitalize Broadway
by bringing new shows and exciting performances to the Great White Way. In addition,
they did what they said they were going to do but there was a small catch. They
raised money from some very influential people both in and out of show business.
They raised more money from people that had nothing to do with show business
playing the “donâ€™t you really want to own a piece of this sure thing” gambit.
people that trusted them. They made Broadway exciting and in the same motion,
These friendly people dissipated millions of dollars of investorsâ€™ money by
keeping two sets of books, one with totally phony results and the other which
showed exactly how bad they were doing. It seems that you canâ€™t both completely
satisfy the publicâ€™s taste and make money at the same time on a continuous basis.
“But thatâ€™s old hat - every crook since the beginning
of time has played that trick. What makes this deal different than all the others?
Tell us something different.”
“Ok, Iâ€™ll tell you something these guys did that was different
from anything that we have seen before. They hired the former chief auditor
on their Livent account at Deloitte Touché, Maria Messina, and put her to work
as the chief financial officer of Livent, in house. Talk about setting the fox
to guard the hen house. Talk about accountants protecting the public interest.
This one toke the cake.” Oh, people have hired an employee from an accounting
firm before. Moreover, some of them even did it at an outrageous salary, which
normally couldnâ€™t have been justified. However, we do not know an instance
where it was done during an audit and with the accounting turncoat able to be
intricately involved with her former employees in going over her own books and
records. She knew how their audit was done; what they would look for and how
to hide whatever was necessary from her former associates at Deloitte. She was
very adept at using every trick of the trade in duping her former employees
who for some unknown reason, still trusted her.
Therefore, when the story began to leak, stockholders
and investors filed class actions that named anybody and everybody as defendants.
Early on though, people just didnâ€™t catch on to the fact that Livent and Deloitte
had committed just about the biggest no-no in the accountingâ€™s professional
rules. They walked into an audit without clean hands, and then certified that
Liventâ€™s books were in good condition, despite having amazingly condoned Liventâ€™s
capitalization of unrecoupable expenses for shows that had already closed.
Deloitte, already in over its head, should have
had the common sense to at least footnote the fact that Maria Messina was at
least originally one of theirs. The lawsuit that was filed against Deloitte
indicated that it had “recklessly disregarded the facts when it audited Livent.”
The statement of claim goes on to state that “Deloitte & Touché produced
three sets of false and misleading financial statements. Deloitte either knew
or recklessly disregarded the facts, which indicated that Liventâ€™s financial
statements were materially false and misleading; As a result, Deloitte issued
unqualified opinions on Liventâ€™s fiscal 1995, 1996 and 1997 financial statements,
when such financial statements materially overstated the companyâ€™s revenues,
net income, total assets and stockholdersâ€™ equity. These unqualified audit opinions
and reports greatly enhanced and facilitated the fraud.” Sounds like a reasonable
conclusion to us; at least based on what facts we have available.
After all, didnâ€™t the Securities and Exchange Commission
later file a civil suit against both men charging them with accounting fraud
and insider trading? In addition, werenâ€™t Drabinsky and Gottlieb both indicated
in New York on sixteen counts of conspiracy and securities fraud? Isnâ€™t it
also true that the two men also fled the United States in order to avoid standing
trial and have refused to defend themselves in this country? Isnâ€™t it a fact
that Maria Messina as Liventâ€™s chief financial officer pled guilty to one count
of filing false financial statements with the Securities and Exchange Commission?
Wasnâ€™t the head of Liventâ€™s audit committee charged with engaging in fraudulent
transactions along with his associates; a man that was in a job that was supposed
to be sacrosanct.
Strangely, the accounting profession has no particular
rule against “revolving-door accountants” and with SEC telling them in no uncertain
terms that had they better address the problem before the government does it
for them has caused no little consternation in the industry. We donâ€™t see how
something wonâ€™t get done regarding this issue because the conflict is so obviously
egregious. We would look for the Independence Standards Board, which has been
around for three years without accomplishing much, to either make the accounting
industry toe the mark, or you can bet that the SEC is going to force the issue.
We seriously have to wonder what the people in this industry are thinking about
when it comes to protecting the public trust, or just about anything else for
that matter. Now that Andersen has tanked after getting involved in no less
than three major frauds in succession, big changes are coming in a under-regulated
profession that is supposed to know better.
As to Messerâ€™s Drabinsky and Gottleib, when U. S.
Attorney for the Southern District filed 16 felony counts of fraud and conspiracy
against the two, Mary Jo White had indicated that in spite of the fact that
the co-conspirators were now living in Canada and had flown to avoid prosecution,
she would see that they were brought back to stand trial. So far, that has
not been the case and in spite of the massive amount of money that went through
Drabinskyâ€™s hands, he has now gotten another stack. He has announced that he
is bringing the play, “The Island,” to Toronto next May. As to money, Drabinsky
indicates that “a number of splendid friends and individuals” have staked him
to another chance. We would ask, another chance at what?