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Curtain comes down as Drabinsky, Gottlieb to serve time

Once the theatre kings of Canada, Garth Drabinsky and Myron Gottlieb are being sent to jail as convicted fraudsters.

The two men - who through their global theatrical empire staged hits such as Phantom of the Opera , Show Boat and Ragtime- were handed stiff jail terms Wednesday, ending a seven-year legal saga and sending a message that Canada's courts are getting tougher on white-collar crime.

In a courtroom packed with reporters, family members and other curious onlookers, Madam Justice Mary Lou Benotto of Ontario Superior Court sentenced the pair to seven and six years, respectively, for fraudulently manipulating financial statements, saying, "Those in business must know, and the community must know, that this will be the court's response to corporate fraud."

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The fraud "was not a one-time impulsive act" and it victimized employees, creditors and investors, Judge Benotto said before police officers escorted Mr. Gottlieb and Mr. Drabinsky from the courtroom.

The two, who were expressionless and stared straight ahead during the sentencing, were spared the humiliation of being led off in handcuffs.

Judge Benotto had ruled in March that the two had defrauded the public while running a private company called MyGar Holdings Inc. and its public successor, Livent Inc.

At MyGar, the pair created a scheme to collect kickbacks from suppliers, while at Livent they manipulated financial statements.

The judge said that she "has a duty to denounce such conduct," adding that Mr. Drabinsky and Mr. Gottlieb "presided over a corporation whose corporate culture was one of dishonesty."

The sentences were close to what prosecutors had asked for - they had suggested a range of eight to 10 years - but far greater than the conditional sentences involving house arrest, community service and lecture tours that defence counsel had proposed.

But the two men got only a taste of jail Wednesday, spending just a few hours in custody while awaiting bail papers that gave them their freedom - at least temporarily.

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Within an hour of the sentencing, a judge of the Ontario Court of Appeal granted the two bail. Three hours later, Mr. Drabinsky and Mr. Gottlieb silently left the courthouse, eyes downcast and climbed into separate vehicles.

Mr. Drabinsky's lawyer, Edward Greenspan, and Mr. Gottlieb's lawyer, Brian Greenspan, declined to comment on their clients' reactions or the length of the sentences. They said that within 30 days, an appeal of the sentences will be added to an appeal of the conviction that has already been filed. The appeal process will likely take several months.

If the appeals fail, the two will be sent to jail, but they could be out again after serving just over a year, said Joseph Groia, a defence lawyer and formerly enforcement director at the Ontario Securities Commission.

Under Canadian law, convicted white-collar criminals can be released to half-way houses or house arrest after serving one-sixth of their sentences, and get full parole after one-third, Mr. Groia said. He speculated that Mr. Drabinsky and Mr. Gottlieb might serve their sentences at the minimum security Beaver Creek Institution in Gravenhurst, Ont., 160 kilometres north of Toronto.

Mr. Groia noted that convictions for similar crimes in the United States would draw sentences of up to 15 years. In that country, a convicted fraudster likely wouldn't get parole before serving about 14 years of that sentence.

Still, lawyer Alan Mark, who heads the litigation group at Toronto law firm Ogilvy Renault, said Wednesday's sentences are stiffer "than has typically been handed out for white-collar criminals in Canada." They send a message that "we're going to see more severe penalties imposed for white collar crime," he said.

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Peter Greene, a partner in the Toronto law firm Affleck Greene McMurtry LLP, said he feels the sentences sent an important signal to the business community.

"Our courts are starting to get a little tougher on white-collar crime, and [it is]long overdue," he said. While Canada should not go to the "extremes" of U.S. courts, where some executives have been given jail terms of hundreds of years, "it is an indication ... that we're going to starting taking this stuff seriously."

In her ruling, Judge Benotto said she determined that the appropriate range for the sentences was between five and eight years. The breach of trust that was involved, and the "ongoing nature" of the financial fraud, could have nudged her to come in at the high end of that range, she said.

However, the facts that Mr. Drabinsky has contributed to the arts in Canada, has worked with charities and has physical limitations from post-polio syndrome were taken into account.

For Mr. Gottlieb, she weighed the fact that "he has lost everything of material value" because of the fraud conviction and can no longer earn a living.

The fact that Mr. Drabinsky's health was taken into account suggests "a person committing the same fraud in good health would have gotten a longer sentence," said Kelley McKinnon, a lawyer at Gowling Lafleur Henderson LLP who is a former OSC prosecutor.

In any case, "by Canadian standards, seven years is a substantial jail sentence for a fraud," Ms. McKinnon said. "However, we've become so conditioned to these huge sentences in the United States that it is easy to consider it insignificant by comparison."

While the convictions and sentences may not boost international confidence in our financial markets, it could make potential Canadian fraudsters think twice, she said.

Mr. Drabinsky was sentenced to four years on one count of the conviction and seven on a second count, but they are to be served concurrently. Mr. Gottlieb was sentenced to four years on one count and six on the other, also to be served concurrently.

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.

The RCMP laid charges against the two men in 2002, but the case took six years to come to trial.

The two still face a number of civil lawsuits.

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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