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Former executive testifies he told Livent to clean up the books

TORONTO -- A former Livent Inc. employee told a Toronto court yesterday that he tried to persuade the company's executives to clean up the books before Livent went public in 1993, but they refused.

Gordon Eckstein, who was Livent's vice-president of finance, told court the company's assets were overstated by about $6-million at the time Livent was planning an initial public offering on the Toronto Stock Exchange.

Mr. Eckstein said he was concerned about launching a public company based on what he considered falsified financial statements.

"I said we should write them off now before going public so you'd have a clean set of books for the public company," said Mr. Eckstein, who also testified in Ontario Superior Court that he was asked every fiscal quarter for five years to change the company's financial statements in order to make the firm look more profitable.

At first, he said, Livent president Myron Gottlieb seemed interested in the idea and said he would raise it with the company's underwriters.

Ultimately, however, he said Mr. Gottlieb and Livent chief executive officer Garth Drabinsky said there was "no way we could write those off."

Mr. Eckstein is the second witness to be called at the trial of Mr. Drabinsky and Mr. Gottlieb, who are both accused of fraud and forgery in connection with alleged misstatements of the financial position of Livent between 1993 and 1998.

Both men have pleaded not guilty to the charges, and have suggested others at Livent carried out accounting schemes without their knowledge.

Mr. Eckstein was also charged in the case, but pleaded guilty last year to one count of fraud and was given a conditional sentence of two years less a day.

He said the company's executives - including Mr. Drabinsky, Mr. Gottlieb and former chief operating officer Robert Topol - held a meeting every quarter where Mr. Eckstein would give them copies of the real financial statements and was then told how to modify them.

In each quarter from 1993 to 1998, Mr. Eckstein said the company wasn't as profitable as it had projected because of constant overspending on theatre productions, especially for advertising costs.

"The actual results were always far lower than the projected results," he testified.

"I was directed by Messrs. Drabinsky, Gottlieb, Topol to make changes to the financial statements to make them closer to the budget and be profitable."

Crown attorney Robert Hubbard asked whether Mr. Drabinsky and Mr. Gottlieb knew financial statements were being changed and were false.

"They absolutely knew it was false," he said.

Mr. Eckstein also described various ways the company managed to hide alleged manipulations from Livent's external auditors at Deloitte & Touche.

He said Livent understated its advertising expenses, and decided to ask its outside advertising firm, Echo Advertising, to confirm the false amounts to the auditors when they double-checked the numbers. He said Echo Advertising president Len Gill agreed to the idea.

"Mr. Drabinsky told Mr. Topol to call Lenny Gill, and told him to make sure he would confirm our numbers," Mr. Eckstein said.

He said the company also hired a computer programmer to change its accounting software so expenses could be deleted without leaving a trail of changes the auditors could follow.

Mr. Eckstein is expected to continue testifying today.

© The Globe and Mail

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