Livent Inc. co-founder Myron Gottlieb was not as involved in major decisions at the live theatre company as his partner Garth Drabinsky, and Mr. Gottlieb's lesser role should have been taken into account by the trial judge who convicted him of fraud, the Ontario Court of Appeal heard on Tuesday.
Lawyer Brian Greenspan, who is representing Mr. Gottlieb, told the court there was no valid evidence clearly demonstrating that his client knew about fraudulent accounting manipulations at Livent, and said the trial judge mistakenly lumped Mr. Gottlieb in with Mr. Drabinsky when convicting the two men in 2009.
"It isn't 'they,'" Mr. Greenspan told a three-judge panel of the appeal court. "The learned trial judge on 11 occasions refers to 'they' in an inculpatory way, but the evidence against Mr. Gottlieb has to be separately assessed."
Mr. Gottlieb and Mr. Drabinsky have asked the Ontario Court of Appeal to overturn their convictions on two counts of fraud and one count of forgery. Madam Justice Mary Lou Benotto of the Ontario Superior Court ruled both men systematically misstated the finances of Livent between 1993 and 1998.
Mr. Greenspan said Mr. Gottlieb's role at Livent was to assist in financing and raising money, and argued that the trial judge mistook that for having a sophisticated knowledge of accounting and of the company's financial statements.
The lawyer also acknowledged that Mr. Drabinsky and Mr. Gottlieb participated in a fraudulent kickback scheme in the early 1990s, but said they did not direct the improper accounting treatment of the scheme that led to their 2009 fraud conviction.
He said his client admits that the two men received payments of $8.1-million from a false invoicing scheme involving two suppliers when Livent was still a privately owned company called Live Entertainment of Canada Corp.
But he said it was Gordon Eckstein, Livent's former senior vice-president of finance, who independently decided to account for the scheme by hiding the invoices as assets on the company's balance sheet, leading to overly inflated assets at the time Livent became a public company in 1993.
The executives did not know the assets were overstated and believed the financial statements were accurate at the time of the initial public offering, Mr. Greenspan said.
However, Mr. Justice David Doherty of the Ontario Court of Appeal said he did not follow the logic of the argument.
"Eckstein is hired by these guys, and when he comes on board the fraud is ongoing, and it's your position that on his own, he unilaterally decided how to book the fraud that was already ongoing?" Judge Doherty said. "That makes no sense, Mr. Greenspan. That defies any notion of common sense.'"
Mr. Gottlieb and Mr. Drabinsky are also appealing their sentences in the case. Judge Benotto sentenced Mr. Drabinsky to seven year and Mr. Gottlieb to six years on the three charges. The men have been out on bail since their conviction while awaiting the appeal hearing.
The hearing began Monday and is scheduled to conclude Wednesday.