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The curtain has come down on two of the best-known fixtures of Toronto's entertainment community.

A Toronto judge ruled yesterday that Livent Inc. co-founders Garth Drabinsky and Myron Gottlieb systemically manipulated the financial statements of Livent in the 1990s as they reported soaring profits from their high-profile live theatre company.

In a dramatic close to one of Canada's longest-running corporate fraud cases, Madam Justice Mary Lou Benotto of the Ontario Superior Court found both men guilty of fraud and forgery, saying they knew the financial statements of Livent were being doctored each year between 1993 and 1998 while Livent was a public company.

Livent reported a steady stream of soaring profits as the company staged huge theatrical hits such as Phantom of the Opera, Show Boat and Ragtime.

"The exponential growth of the company was analogous to an athlete taking a performance-enhancing drug," Judge Benotto said in her ruling. "The result may be spectacular but the means involve cheating."

She said accounting manipulations occurred "systematically" during the years Livent was a public company.

"This was widespread and long-standing," she said. "The accounting system was fraudulent. Most importantly, I have been satisfied beyond a reasonable doubt that you knew what was happening with the financial statements."

Mr. Drabinsky slumped over and hung his head after the verdict was delivered. His wife and adult children wept and embraced each other, then hugged Mr. Drabinsky and sobbed after the judge left the courtroom.

Livent collapsed in 1998 after a group of new investors - including Hollywood heavyweight Michael Ovitz - alleged they had uncovered evidence of accounting manipulations. Mr. Drabinsky and Mr. Gottlieb were suspended from the company, which later filed for bankruptcy and sold off its assets.

Yesterday, Mr. Gottlieb removed and folded his glasses but otherwise showed little emotion as the verdict was delivered. His family members also embraced him after the judge departed.

The two men left the courthouse together, continuing to stick close together as they have through a 30-year business partnership. Both refused comment as they departed.

Their lawyers will appear in court again on April 8 to set a date for a sentencing hearing.

Under sentencing guidelines in 1998, when the crimes occurred, each count of fraud carries a maximum jail term of 10 years while the maximum sentence for forgery is 14 years.

Lawyers for the two men would not say whether the verdict will be appealed until they had studied the judge's 85-page written decision.

"We have not read it and we need an opportunity to review it carefully, and we will. And then we'll have something to say," said Edward Greenspan, Mr. Drabinsky's lawyer.

"It has been an 11-year struggle, so it takes a bit of time to react to it," added lawyer David Roebuck, who is also part of Mr. Drabinsky's legal team.

Crown attorney Alex Hrybinsky said he could not comment on the verdict because the case is not over until the sentencing is completed.

The decision marks the end of a long-running criminal case, but also opens a new door in the Livent saga.

Several civil lawsuits, that have been on hold pending the outcome of the criminal matter, can now proceed, including a lawsuit against Mr. Drabinsky and Mr. Gottlieb filed by the Livent's bankruptcy trustee on behalf of the company. The men have countersued in the action.

A representative of Livent's creditors yesterday said the verdict also puts an end to claims from the two men for severance from Livent following their dismissal. He said some of Livent's funds that had been held in trust can now be distributed to unsecured creditors, including former employees and suppliers.

In Canada's legal community, the rare conviction in a white-collar corporate fraud case had lawyers buzzing about the effect it will have on Canada's international reputation for being soft on corporate crime.

"There's generally been a perception both here in Canada and in the United States that our law enforcement agencies have done a poor job prosecuting securities fraud cases," said Alan Mark, who heads the litigation group at Toronto law firm Ogilvy Renault.

"It's important that the authorities here be able to demonstrate that they can indeed prosecute these fraudsters, so it's an important message."

However, Mr. Mark said the fact the case took 11 years to complete means it may still leave U.S. authorities unimpressed with Canada's legal system.

"Between the time the Livent story started and today, the folks at Hollinger were investigated, prosecuted and have served over a year in jail. The contrast is pretty stark."

While U.S. authorities have prosecuted a string of accounting fraud cases in recent years, including Enron Corp. and WorldCom Inc., Canada has had no major accounting frauds go to trial in many years. Major trials are pending involving former executives from Nortel Networks Corp. and Royal Group Technologies Inc.

"We've had plenty of accounting scandals, but we're a bit short on trials," said David Sharp, a business professor at the University of Western Ontario who specializes in ethics and accounting.

New York lawyer Murielle Steven Walsh, who is representing bondholders who successfully sued Mr. Drabinsky and Mr. Gottlieb in the United States and are still trying to collect on a $36.5-million (U.S.) judgment, said yesterday she felt the Crown had a strong case in the criminal trial.

But Ms. Steven Walsh said she was amazed by the slowness of the process.

"I was really surprised to see how long it took," she said. "I mean, 10 years, that's a lot."

The RCMP laid charges against Mr. Drabinsky and Mr. Gottlieb in 2002, but the case took six years to come to trial. Another former Livent executive accused in the case, Robert Topol, had his charges dismissed after he complained of undue delay.

During the Livent trial, the Crown alleged Mr. Drabinsky and Mr. Gottlieb told accounting staff members to doctor the company's books in every financial quarter between 1993 and 1998 to ensure Livent would meet increasingly unrealizable financial projections.

Three former Livent employees testified they attended meetings where they heard Mr. Drabinsky and Mr. Gottlieb discuss financial manipulations. The Crown also tabled numerous internal company documents, including memos listing summaries of accounting manipulations in each year.

Defence lawyers portrayed their clients as victims who were unaware a pervasive fraud was occurring at their company. They accused Gordon Eckstein, the company's former senior vice-president of finance, of masterminding the crime and carrying it out independently behind the backs of his bosses.

But Judge Benotto rejected that argument, saying she did not believe Mr. Eckstein would have conducted the fraud independently. She said he would not have prepared summaries of financial manipulations for his managers if he were trying to hide a fraud from them.