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Eckstein feared he would be blamed

Former Livent executive testifies he kept detailed records of improper adjustments made to financial reports

TORONTO -- A former Livent Inc. employee said he kept detailed records of improper adjustments being made to the company financial reports because he feared he would some day be blamed for them.

Gordon Eckstein, Livent's former vice-president of finance, told a Toronto court yesterday he made numerous memos and summaries of adjustments in part because he wanted a record to prove that Livent co-founders Garth Drabinsky and Myron Gottlieb were aware of the changes.

"I always instructed the staff to keep detailed records of everything that was done," Mr. Eckstein testified. "If anything went on, I knew Drabinsky and Gottlieb would say they had nothing to do with it."

He added that Mr. Drabinsky, who was previously an entertainment lawyer, had a detailed understanding of accounting practices.

"On many occasions he told me he was smarter than any accountant in the world."

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 Livent's financial position 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. He was given a conditional sentence of two years less a day.

Crown attorney Robert Hubbard showed Mr. Eckstein a series of Livent internal documents yesterday that were seized following the company's collapse. They included lengthy financial schedules for shows running in different locations and summary documents used to prepare quarterly financial statements.

For example, one document dated Sept. 30, 1995, was headed "Income Statement Adjustments" and listed 15 items that were adjusted to change the actual financial results for the quarter. The original profit of $5-million was changed to a profit of $11-million, the document shows.

Mr. Eckstein said the changes were made so the financial results matched projections that had been made at the start of the year.

"Each quarter Mr. Drabinsky would say, 'Get as close to budget as you can,' " Mr. Eckstein said.

He said all the proposed adjustments were discussed with Mr. Drabinsky and Mr. Gottlieb at quarterly management meetings. In court yesterday, he identified Mr. Drabinsky's handwriting on some of the documents.

Mr. Hubbard told Madam Justice Mary Lou Benotto of the Ontario Superior Court that he intends to prove the volume of documents he showed Mr. Eckstein were all linked to Mr. Drabinsky because they came from his office or he wrote notes on them.

The Crown attorney said he will also refer to another volume of similar documents involving Mr. Gottlieb.

Lawyers for Mr. Drabinsky and Mr. Gottlieb, however, suggested the documents may be contested during the trial.

Lawyer Brian Greenspan, who is representing Mr. Gottlieb, told Judge Benotto there has been no proof at the trial as of yet that the documents came from the office of either accused.

Edward Greenspan, who is representing Mr. Drabinsky, said he hoped there would be a proper occasion at the trial to discuss how the documents were gathered.

"It's not ever been properly explained to the court how these documents ended up in the possession of the police," he said. "It's very unusual, most unusual."

© The Globe and Mail

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