09/13/2011 04:33 EDT | Updated 01/12/2012 02:21 EST

13 years after Livent collapse, Drabinsky, Gottlieb finally jailed for fraud

TORONTO - Days after rubbing shoulders with celebrities at the Toronto International Film Festival, disgraced theatre impresario Garth Drabinsky's long fall from grace ended behind bars Tuesday as Ontario's highest court refused to overturn his fraud conviction.

As a result, Drabinsky and Livent Inc. co-founder Myron Gottlieb -- each convicted in 2009 on two counts of fraud -- found themselves in prison for the first time since their company, once the toast of the Canadian theatre scene, collapsed in bankruptcy in 1998.

Their futile attempts to convince the Ontario Court of Appeal to overturn their convictions weren't entirely in vain, however -- the three-judge panel agreed to trim their sentences. Drabinsky now faces five years in prison, his partner four years.

"There was ample evidence upon which a reasonable trier of fact could convict both appellants," the court said in a written decision.

"Indeed, if the trier of fact accepted the thrust of the evidence of (the witnesses), a conclusion which in our view was reasonably available, the evidence was overwhelming."

The two were convicted after Ontario court Judge Mary Lou Benotto found that during a nine-year span they manipulated the income reported by Livent, once the driving force behind Canadian and Broadway theatre hits like "The Phantom of the Opera'' and "Showboat."

At the time of their trial, Benotto imposed a sentence that took into account the magnitude of the company's collapse -- it was estimated at the time that investors lost some $500 million when the company went bankrupt in 1998.

However, since it was never clear to what extent the fraud was to blame for the company's collapse, the Appeals Court said the losses don't provide an accurate means of assessing the fraud's impact or an appropriate punishment for its perpetrators.

"It was wrong to attribute the ultimate failure of Livent to the fraud," the ruling said.

"The causes of Livent's demise were admittedly numerous and complex. The bankruptcy no doubt caused significant losses to creditors, employees and investors. Those losses cannot, in our view, be laid entirely at the feet of Drabinsky and Gottlieb."

The two men appealed both their convictions and their sentences, arguing the fraud was executed by other Livent employees without their knowledge.

Lawyers Edward and Brian Greenspan also argued the judge used faulty logic in assuming the defendants were in the know regarding financial activity at the company.

But the Appeals Court rejected those arguments, saying Benotto properly evaluated the credibility of key witnesses and reached logical conclusions based on the evidence.

"The trial judge found -- and there was abundant evidence to support this finding -- that this kind of pervasive fraudulent activity could not have occurred in the Livent offices day after day, month after month, and year after year without the direction and support of Drabinsky and Gottlieb."

Both men were taken into custody on Monday in anticipation of the decision, marking the first time either one of them has spent a night behind bars in the 13 years since the collapse of their company.

On the weekend, Drabinsky was seen hobnobbing with Hollywood glitterati at a Toronto International Film Festival luncheon, then later at the premiere of "Barrymore," a film he produced starring Christopher Plummer.

Their lawyers said there will be no effort to seek bail unless Gottlieb and Drabinsky decide to appeal Tuesday's rulings to the Supreme Court of Canada -- a decision that they said has not yet been made.

Brian Greenspan, who represents Gottlieb, said that won't happen before both legal teams have sifted through the 69-page ruling. He declined to comment on how Gottlieb reacted to the news of his shortened sentence.

"Myron's always been a very thoughtful and quietly confident guy," Greenspan said. "He wants the opportunity to assess it, to review the judgment along with me, and make a decision."

The fact the Appeals Court recognized that a dollar figure was never attached directly to the fraud and chose to reduce the sentences accordingly could have broader implications for others accused of white-collar crime, he added.

"What the court wrote, its reasons for the reduction of the sentence, will have some impact on other sentences and other considerations in commercial fraud cases because it isn't just case specific," Greenspan said.

"It deals with some general principles relating to commercial fraud."

Edward Greenspan, who represents Drabinsky, said the sentence may not come into play if his client decides to continue to press his case.

"The general rule is that sentence is not appealed ... to the Supreme Court of Canada. So we'll be looking at that as well to see whether or not there's any basis to appeal the sentence to the highest court in the land."

In handing down the convictions in August 2009, Benotto said Drabinsky and Gottlieb devised a kickback scheme that dated back to 1989. Livent's financial statements were falsified to reduce expenses and bring net earnings in line with projections.

Convictions were obtained in part on the testimony of former Livent employees who either received light sentences or avoided prosecution in exchange for their co-operation. At appeal, the Greenspans argued -- unsuccessfully -- that the witnesses were not credible.