Livent Inc.'s former chief financial officer said yesterday she did not tell old colleagues at Deloitte & Touche about an accounting fraud at Livent because she felt she could deal with it internally.
Maria Messina worked at Deloitte & Touche as an auditor on the Livent account until she agreed to join Livent in May, 1996.
In a Toronto court yesterday, Crown attorney Alex Hrybinsky asked Ms. Messina why she didn't alert Deloitte & Touche staff after she first became aware of an accounting fraud at Livent in July, 1997.
"It was just a very bad and difficult situation. ... From my own perspective, all I could really do was fight from the inside," she replied.
She said she tried to help Deloitte & Touche staff by supporting them when they recommended accounting adjustments or proposed writedowns.
"I was doing what I could to get the financials to what the actual results were, without disclosing the fraud," she said.
Ms. Messina testified Tuesday she did not expose the fraud until August, 1998, after new investors had taken over managing the company.
Ms. Messina is testifying at the trial of Livent co-founders Garth Drabinsky and Myron Gottlieb, who are charged with fraud and forgery in connection with alleged misstatements of Livent's financial position between 1993 and 1998. Both men have pleaded not guilty, and have suggested others at Livent carried out accounting schemes without their knowledge.
In testimony Tuesday, Ms. Messina said she believes the fraud would have been very hard to detect at the company.
She said auditors tested various elements of the company's accounting - such as levels of accounts payable - but did not detect problems.
She noted one of Livent's biggest expenses was its advertising costs, and said auditors tried to verify the amounts Livent owed for unpaid advertising. She suggested, however, that there was "collusion" between Livent and its main advertising firm, Echo Advertising.
Prosecutors have alleged Echo Advertising agreed to requests from Livent to reverse billings to remove them from one fiscal year, and would then send new invoices for the reversed amounts in the following year. The Crown has also contended that Echo sent letters to Deloitte & Touche that did not disclose the deferred billings.
Also Tuesday, Ms. Messina testified Mr. Drabinsky and Mr. Gottlieb both had a good understanding of accounting.
She said Mr. Gottlieb, who was Livent's president, had an "extensive and comprehensive" knowledge of accounting and was involved in the company's efforts to reconcile its books to U.S. accounting rules after Livent listed on the Nasdaq Stock Market in 1995.
Mr. Gottlieb's lawyer, Brian Greenspan, has previously suggested his client did not have a sophisticated understanding of accounting.
Ms. Messina also told the trial she found the atmosphere at Livent toxic and abusive.
She testified Mr. Drabinsky was verbally abusive, belittling and dictatorial.
She also said her manager, Gordon Eckstein, frequently yelled at staff members. She said he once threw a desk clock at her and another time "whipped" a pen at her. In testimony earlier at the trial, Mr. Eckstein admitted he had been verbally abusive at times, but denied throwing things.
Ms. Messina testified Mr. Gottlieb once told her that "the problem with Mr. Eckstein was that he thinks he's a mini-Garth."
She said the strong and angry personalities at the company contributed to her decision to stay quiet about the fraud for so long.
Janet McFarland