8Ed.sol8.01 - CASE 8.1 LIVENT, INC. Synopsis Similar to...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CASE 8.1 LIVENT, INC. Synopsis Similar to most financial frauds, the Livent, Inc. fraud was masterminded by a few individuals, primarily Garth Drabinsky and Myron Gottlieb. However, numerous individuals were eventually drawn into Livent’s fraudulent schemes by its principal architects, including Maria Messina, the company’s chief financial officer (CFO). Messina, a former partner with Deloitte & Touche’s Canadian affiliate, had previously served as Livent’s audit engagement partner. The fraud unraveled following Livent’s takeover by an investment group led by Hollywood mogul Michael Ovitz. The new management team installed by Ovitz soon found that “massive, systematic irregularities” permeated the company’s accounting records. Subsequent investigations by various regulatory authorities, including the SEC, resulted in numerous civil lawsuits and criminal indictments being filed against Drabinsky and his former associates. Two features of the Livent fraud were particularly disturbing to SEC officials. First, Livent’s accounting staff helped further the fraud by developing computer software that allowed senior management to track the company’s “real” financial data and the data that had been distorted by fraudulent manipulations. The accounting software also allowed Livent’s executives to more readily conceal the fraud from the company’s Deloitte auditors. The second troubling feature of the Livent fraud was the matter-of-fact manner in which the company’s executives organized and carried out the fraud. Following the collapse of Livent, the company’s independent auditors were criticized for failing to discover that the company’s financial statements had been grossly misstated. Much of this criticism stemmed from the fact that the Livent fraud had features common to several “classic” financial frauds. These features included an extremely aggressive, growth-oriented management team, a history of prior financial reporting indiscretions by top company officials, a constant and growing need for additional capital, and the existence of related-party transactions. The presence of these “red flags” should cause auditors to recognize that there is a higher than normal risk that the given client’s financial statements may contain material misstatements.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Case 8.1 Livent, Inc. Livent, Inc.—Key Facts 1. Garth Drabinsky and Myron Gottlieb founded Livent in 1989 after they had been forced to relinquish control of Cineplex Odeon following charges of irregularities in that company’s accounting records. 2. Drabinsky was the creative genius behind Livent’s impressive string of Tony Award- winning theatrical productions during the 1990s but also dominated, with the help of Gottlieb, every other important facet of Livent’s operations. 3.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/15/2011 for the course ACT 442 taught by Professor Nancy during the Spring '11 term at Ohio State.

Page1 / 7

8Ed.sol8.01 - CASE 8.1 LIVENT, INC. Synopsis Similar to...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online