Court upholds $118 million award against Livent auditor Deloitte

TORONTO -- The corporate auditor to the once high-flying Livent theatre company run by disgraced mogul Garth Drabinsky was partly responsible for the hundreds of millions of dollars creditors ended up losing, Ontario's top court ruled Friday.

See Full Article

In upholding an $85.6-million award against Deloitte and Touche -- $118 million with interest -- the Court of Appeal sided with a judge who found the auditor had been negligent in failing to detect, and act on, the fraudulent behaviour of Drabinsky and his partner, Myron Gottlieb, in the 1990s.

After all, there had been numerous red flags for several years that Deloitte essentially ignored, the court found.

"Deloitte knew that Drabinsky and Gottlieb were aggressive entrepreneurs who pushed the envelope in terms of accounting and financial measures," the Appeal Court said in a 100-page judgment.

"It is more likely than not that a careful and objective investigation into Livent's financial statements, pursued with 'an attitude of professional skepticism,' would have revealed the fraud."

Under the flamboyant Drabinsky, Livent Inc. brought popular shows like "Phantom of the Opera," "Show Boat," "Kiss of the Spider Woman," and "Joseph and the Amazing Technicolor Dreamcoat" to stages across North America. But the apparent success was based on a massive sleight of hand that included cooking the books, kickbacks and manipulated expenses.

The shenanigans were discovered in mid-1998 when a new management team took over. Within months, Livent went bust -- leaving investors and banks about $500 million out of pocket. Drabinsky and Gottlieb went to prison for fraud and forgery.

Livent's bankruptcy receiver sued Deloitte -- which had audited the company's books from 1989 through to 1998 -- on behalf of those owed money.

In a novel ruling that followed a 68-day trial in April 2014, Superior Court Justice Arthur Gans found Deloitte largely liable for Livent's losses after August 1997, saying company creditors had been hapless victims of a fraud the auditor should have brought to their attention had it done a proper job.

Barring such a claim, Gans said, would deprive innocent parties a remedy for an auditor's negligence in those cases where the services of an auditor are most critical -- namely, the detection of wrongdoing by high-level management.

Deloitte appealed, arguing among other things that it should not have been held responsible for the fraud, or for the fact investors lost money.

The Appeal Court disagreed, siding with the judge's finding the auditor was liable for most of the post-August 1997 losses.

Deloitte knew the impresarios were using Livent's financial statements to help them raise money but failed miserably in scrutinizing those statements, the Appeal Court found. In addition, the court rejected Deloitte's argument that Livent's losses all flowed from the "inherent vicissitudes" of its risky business rather than from its failure do to a proper audit.

"The trial judge distinguished between losses generated from Livent's unprofitable but legitimate theatre business, operating within the changed environment, and those losses attributable to Deloitte's negligence," the Appeal Court ruled.

The court also dismissed a Livent cross-appeal that sought to extend the period of losses for which Deloitte should have been liable.

In a statement, a spokeswoman for Deloitte said it needed time to review the decision before deciding on any next steps.

"The audit and legal issues in this case are exceptionally complex and important -- not only to the audit profession but to the broader business community," Emily Richardson said.



Advertisements

Latest Economic News

  • 'Energizer Bunny' loonie to peak near 80 cents US: experts

    Economic CTV News
    Two leading Bay Street strategists expect the Canadian dollar’s steady climb over the last two months will start to top out at about 80 cents US, a level it flirted with on Monday amid signs of an increasingly robust economy. Source
  • In Google vs. the EU, a $2.7B fine could just be the start

    Economic CTV News
    SAN FRANCISCO -- Google's parent company Alphabet can easily afford the $2.7 billion write-down it's taking to cover a big antitrust fine in Europe. But it might find it harder to shrug off the rest of the European regulatory assault that's headed its way. Source
  • Alphabet profit slumps on record $2.7B US fine by European Union

    Economic CBC News
    Alphabet Inc. reported a 27.7 percent drop in quarterly profit as the company recorded a previously announced charge related to a record fine imposed on its Google unit by the EU. EU antitrust regulators last month hit Google with a record 2.4-billion-euro ($2.7 billion US) fine for favouring its own shopping service, taking a tough line in the first of three probes of its dominance in searches and smartphone operating systems. Source
  • Why an 80-cent loonie is good for shoppers but bad for oil producers

    Economic CBC News
    One of the few saving graces of the oil downturn has been that oil is priced in U.S. dollars. Energy companies sell their products in U.S. currency, but pay their expenses in Canadian dollars. So as the loonie dropped over the past three years, it tempered the brutal downturn. Source
  • S&P downgrades Manitoba's credit rating

    Economic CTV News
    WINNIPEG -- The Manitoba government has had its credit rating downgraded for the second time in 13 months by S&P Global Ratings. The international bond-rating agency said the province continues to post large deficits, which are adding to a long-term debt left by the former NDP government. Source
  • Cannabis executive says producers unlikely to meet demands of consumer market

    Economic CTV News
    MONTREAL - An official with a large producer of medical cannabis doubts Canada's licensed companies will be able to adequately supply consumers come next July. Cam Battley, executive vice-president of Aurora Cannabis Inc., says the existing capacity and what is envisioned will not be sufficient to meet the needs of the adult consumer market. Source
  • Sweetened bid for Tembec wins support from shareholders who opposed deal

    Economic CBC News
    Rayonier Advanced Materials Inc. has raised its takeover offer for Tembec Inc. to win the support of two of the forestry company's largest shareholders who had threatened to block the friendly deal. Rayonier and Tembec said Oaktree Capital Management LP and Restructuring Capital Associates LP have now agreed to support the takeover. Source
  • Norbord OSB mill in 100 Mile House, B.C., resumes production after wildfires

    Economic CBC News
    Norbord Inc. says its oriented strand board mill in 100 Mile House, B.C., resumed production over the weekend. The company says work restarted after an evacuation order for 100 Mile House and nearby communities was lifted. Source
  • European car companies act as cartel & collude together, lawmakers allege

    Economic CBC News
    Car stocks tumbled on Monday after a report in Der Spiegel that VW, BMW, Audi and Porsche may have colluded to fix the prices of diesel emissions treatment systems. (Michel Euler/Associated Press) Source
  • OPEC moves to cap Nigerian oil output, boost production cut compliance

    Economic CBC News
    OPEC moved on Monday to cap Nigerian oil output and called on several members to boost compliance with production cuts to help clear excessive global stocks and support flagging prices. OPEC has agreed with several non-OPEC producers led by Russia to cut oil output by a combined 1.8 million barrels per day (bpd) from January 2017 until the end of March 2018. Source