Her Majesty the Queen v. Drabinsky et al.

[Indexed as: R. v. Drabinsky]

107 O.R. (3d) 595

2011 ONCA 582

Court of Appeal for Ontario,

Doherty, Goudge and R.P. Armstrong JJ.A.

September 13, 2011

Criminal law -- Evidence -- Witnesses -- Credibility -- Appellants convicted of large-scale commercial frauds -- Key Crown witnesses being senior officials in appellants' companies, participating in fraud and benefitting from co- operation with Crown -- Trial judge identifying witnesses as unsavoury and being aware of credibility concerns -- Witnesses' testimony confirmed by abundance of evidence and in absence of collusion unsavory witnesses capable of confirming each other's evidence. [page596]

Criminal law -- Fraud -- Elements of the offence -- Crown alleging that appellants falsely representing value of company's assets in support of IPO -- Crown not required to prove that investors suffered actual loss -- Proof of risk to investors' interests sufficient -- That some investors may have relied on other factors than balance sheets irrelevant.

Criminal law -- Fraud -- Sentence -- D and G convicted on two counts of large-scale commercial fraud which compromised integrity of marketplace -- Neither appellant having criminal record and both having made significant contributions to community -- D receiving concurrent sentences of seven years and four years and G receiving concurrent sentences of six years and four years -- Significant penitentiary sentence appropriate despite mitigating factors -- Appellants guilty of large-scale fraud but trial judge erring by not imposing sentence at lower end of range for such frauds as record not proving bankruptcy of public company attributable solely to fraud and Crown not seeking to prove specific amount of large- scale losses suffered as result of fraud -- D's sentence reduced to five years and four years concurrent -- G's sentence reduced to four years and three years concurrent.

Criminal law -- Trial -- Trial judge -- Reasons for judgment -- Trial on fraud and forgery charges turning almost entirely on factual findings and in particular on appellants' knowledge of and involvement in fraudulent representations -- Trial judge's reasons not required to address every factual dispute -- Trial judge canvassing evidence thoroughly and providing reasons for credibility findings that were central to her findings of fact -- Reasons not inadequate.

D and G were each charged with two counts of fraud and one count of forgery. They operated their entertainment business through MyGar until 1993, when MyGar made a public offering of its shares and became a public company, Livent. D and G were large shareholders in Livent and controlled its operations and management decisions. The first fraud count related to the operation of MyGar. The Crown alleged that admitted kickbacks to the appellants were disguised by booking them to fixed assets and preproduction costs, resulting in a misrepresentation of the value of MyGar's assets in its financial statements and a fraud against the investors in the IPO. The second count of fraud and the forgery count involved Livent. The Crown alleged that a variety of accounting techniques were used to fraudulently reduce expenses and increase net income so that Livent's reported net income would meet budget projections and Livent would appear to potential investors and lenders to be meeting its financial expectations. The chief Crown witnesses were M, the CFO of Livent, and E, a vice-president of Livent in charge of the accounting department. Both witnesses had participated in the frauds. M was never charged, and E pleaded guilty in exchange for a non- custodial sentence. The trial judge found both accused guilty on all three counts. The fraud convictions were stayed. D was sentenced to seven years' imprisonment for the Livent fraud and four years concurrent for the MyGar fraud. G received six years for the Livent fraud and four years concurrent for the MyGar fraud. The appellants appealed both their convictions and their sentences.

Held, the conviction appeals should be dismissed; the sentence appeals should be allowed.

The trial judge's reasons were not inadequate. The trial turned almost entirely on factual findings and, in particular, factual findings relevant to the appellants' knowledge of, and involvement in, the admittedly fraudulent representations in [page597] the financial statements. The trial judge's reasons canvassed the evidence thoroughly and provided reasons for the credibility findings that were the foundation on which she made her central findings of fact. Her reasons were not required to address each and every factual dispute arising from the evidence.

The verdicts were not unreasonable. There was ample evidence upon which a reasonable trier of fact could convict both appellants. If the trier of fact accepted the thrust of the evidence of M and E, a conclusion which was reasonably available, the evidence was overwhelming, particularly in the absence of any testimony from the appellants. The trial judge identified M and E as unsavoury witnesses and cautioned herself accordingly. Despite the many reasons for concern about the truth of anything E and M said, there was an abundance of evidence that confirmed many aspects of their testimony. The trial judge did not err in holding that the evidence of E and that of M were sufficiently independent of each other as to be capable of providing confirmation of the truth of the evidence of the other. There is no prohibition against the evidence of one Vetrovec witness confirming the evidence of another Vetrovec witness. There was no evidence of collusion between M and E. The trial judge did not act unreasonably in choosing to accept significant parts of the evidence of M and E.

The trial judge did not err in finding that the misrepresentations in the financial statements relied on in support of the IPO were material to the decision to purchase Livent shares through the IPO. The Crown was not required to prove actual loss to investors. Proof of risk to their economic interests was sufficient. The trial judge was aware of the fact that the Livent charges were not based on Livent's accounting practices and appreciated that the use of accounting practices to defer expenses was not in and of itself fraudulent. She correctly identified the fraudulent conduct as the manipulation of Livent's financial records to achieve projected income figures when to the knowledge of the appellants those figures did not reflect the ongoing financial reality at Livent.

General deterrence and denunciation are of primary importance when sentencing persons who as officers and directors of public companies use their positions to engage in large-scale frauds that compromise the integrity of the marketplace. The trial judge was correct in determining that crimes like those committed by the appellants must normally attract significant penitentiary terms well beyond the two-year limit applicable to conditional sentences. The trial judge recognized the many mitigating factors, including the absence of any criminal record, the appellants' many contributions to the community and D's significant physical disability that impaired his mobility. However, the mitigating factors did not justify a departure from the established range of sentence. The trial judge did not fail to give adequate weight to the fact that Livent was not a "scam" and the appellants believed that it would ultimately be a huge success. Although cases in which the company involved was a "scam" normally call for significantly longer sentences than frauds committed in the course of the operation of a legitimate business, the appellants received significant financial benefits from the company's operations. With respect to the MyGar fraud, the Crown made no submissions alleging any actual economic loss. Although a sentence within the established range for large-scale frauds was still warranted, the trial judge erred by failing to consider actual amount of loss not proven nor could record support the conclusion that the bankruptcy was caused solely by the fraud. As a result, the appropriate sentence should be placed somewhat lower in that range. D's sentence was varied to five years for the Livent fraud and four years concurrent for the MyGar fraud. G's sentence was varied to four years for the Livent fraud and three years concurrent for the MyGar fraud. [page598]

APPEAL by the accused from the conviction entered March 25, 2009 and the sentence imposed August 5, 2009 by Benotto J., 2009 12802 (ON SC), [2009] O.J. No. 1227, 242 C.C.C. (3d) 449 (S.C.J.) and 2009 41220 (ON SC), [2009] O.J. No. 3282, 246 C.C.C. (3d) 214 (S.C.J.).

Cases referred to Law Society of Upper Canada v. Neinstein (2010), 99 O.R. (3d) 1, [2010] O.J. No. 1046, 2010 ONCA 193, 317 D.L.R. (4th) 419, 259 O.A.C. 313, 186 A.C.W.S. (3d) 836, 1 Admin. L.R. (5th) 1; R. v. Beaudry, [2007] 1 S.C.R. 190, [2007] S.C.J. No. 5, 2007 SCC 5, 276 D.L.R. (4th) 1, 356 N.R. 323, J.E. 2007-280, 216 C.C.C. (3d) 353, 44 C.R. (6th) 57, 43 M.V.R. (5th) 1, 71 W.C.B. (2d) 862, EYB 2007-112960; R. v. Carter, 1981 158 (SCC), [1982] 1 S.C.R. 937, [1981] S.C.J. No. 102; R. v. Dinardo, [2008] 1 S.C.R. 788, [2008] S.C.J. No. 24, 2008 SCC 24, EYB 2008-133045, J.E. 2008-1022, 77 W.C.B. (2d) 514, 374 N.R. 198, 231 C.C.C. (3d) 177, 293 D.L.R. (4th) 375, 57 C.R. (6th) 48; R. v. Gray, 1995 18 (ON CA), [1995] O.J. No. 92, 76 O.A.C. 387, 95 D.T.C. 5262, 26 W.C.B. (2d) 209 (C.A.) [Leave to appeal to S.C.C. refused [1995] S.C.C.A. No. 116]; R. v. Khela, [2009] 1 S.C.R. 104, [2009] S.C.J. No. 4, 2009 SCC 4, EYB 2009-153174, J.E. 2009-180, 383 N.R. 279, 238 C.C.C. (3d) 489, 265 B.C.A.C. 31, 301 D.L.R. (4th) 257, 62 C.R. (6th) 197; R. v. Kienapple, 1974 14 (SCC), [1975] 1 S.C.R. 729, [1974] S.C.J. No. 76, 44 D.L.R. (3d) 351, 1 N.R. 322, 15 C.C.C. (2d) 524, 26 C.R.N.S. 1; R. v. Linklater, [2009] O.J. No. 771, 2009 ONCA 172, 246 O.A.C. 303; R. v. Naicker, [2007] B.C.J. No. 2626, 2007 BCCA 608, 229 C.C.C. (3d) 187, 76 W.C.B. (2d) 757, 249 B.C.A.C. 145, 54 C.R. (6th) 280 [Leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 45]; R. v. Nasogaluak, [2010] 1 S.C.R. 206, [2010] S.C.J. No. 6, 2010 SCC 6, 315 D.L.R. (4th) 193, EYB 2010-169818, 2010EXP-739, 206 C.R.R. (2d) 100, J.E. 2010-403, 251 C.C.C. (3d) 293, 398 N.R. 107, 72 C.R. (6th) 1, [2010] 4 W.W.R. 1, 90 M.V.R. (5th) 1, 474 A.R. 88, 19 Alta. L.R. (5th) 1; R. v. Sheppard, [2002] 1 S.C.R. 869, [2002] S.C.J. No. 30, 2002 SCC 26, 210 D.L.R. (4th) 608, 284 N.R. 342, J.E. 2002-582, 211 Nfld. & P.E.I.R. 50, 162 C.C.C. (3d) 298, 50 C.R. (5th) 68, 52 W.C.B. (2d) 360; R. v. Théroux, 1993 134 (SCC), [1993] 2 S.C.R. 5, [1993] S.C.J. No. 42, 100 D.L.R. (4th) 624, 151 N.R. 104, J.E. 93-793, 54 Q.A.C. 184, 79 C.C.C. (3d) 449, 19 C.R. (4th) 194, 19 W.C.B. (2d) 212; R. v. Vetrovec, 1982 20 (SCC), [1982] 1 S.C.R. 811, [1982] S.C.J. No. 40, 136 D.L.R. (3d) 89, 41 N.R. 606, [1983] 1 W.W.R. 193, J.E. 82-563, 67 C.C.C. (2d) 1, 27 C.R. (3d) 304, 7 W.C.B. 477; R. v. W. (R.), 1992 56 (SCC), [1992] 2 S.C.R. 122, [1992] S.C.J. No. 56, 137 N.R. 214, J.E. 92-909, 54 O.A.C. 164, 74 C.C.C. (3d) 134, 13 C.R. (4th) 257, 16 W.C.B. (2d) 304 Statutes referred to An Act to Amend the Criminal Code (Capital Markets Fraud and Evidence-Gathering), S.C. 2004, c. 3, ss. 2, 3 Criminal Code, R.S.C. 1985, c. C-46, s. 686(1)(a)(i)

Edward L. Greenspan, Q.C., and Michael W. Lacy, for Garth Howard Drabinsky. Brian H. Greenspan, for Myron Irwin Gottlieb. Paul Lindsay, Alexander Hrybinsky and Amanda Rubaszek, for respondent. [page599]

BY THE COURT: -- Introduction

[1] The appellants were charged with two counts of fraud and one count of forgery. They were tried by a judge alone at a trial lasting 65 days. They called no evidence. On March 25, 2009, they were convicted on all counts. The forgery count was subsequently stayed pursuant R. v. Kienapple, 1974 14 (SCC), [1975] 1 S.C.R. 729, [1974] S.C.J. No. 76.

[2] On August 5, 2009, the trial judge sentenced Drabinsky to a term of imprisonment of seven years and Gottlieb to a term of six years.

[3] The appellants appeal both their convictions and their sentences.

[4] On their conviction appeals, the appellants raise a number of arguments which, in large measure, challenge the findings of fact made by the trial judge. We see no reversible error and would dismiss the conviction appeals.

[5] The appellants also seek leave to appeal their sentences and, if leave is granted, appeal those sentences. We agree with the trial judge that substantial penitentiary terms were required for both appellants. We are, however, satisfied that she erred in principle in failing to take into account the absence of any evidence of the actual financial loss occasioned by the frauds. While financial loss is not an essential element of the crime of fraud, it is a significant consideration on sentence. While the absence of proof of actual financial loss could not justify a sentence outside of the substantial penitentiary range, it does justify sentences that are somewhat lower within that range than those imposed by the trial judge. We would vary Drabinsky's sentence to five years and Gottlieb's sentence to four years.

The Background

[6] The trial judge delivered comprehensive reasons for conviction. She reviewed the evidence at length and made detailed findings of fact. We will refer to the evidence only as necessary to address the appellants' arguments on appeal. Our reasons are best read in conjunction with the full factual picture described by the trial judge in her reasons.

A: The rise and fall

[7] Garth Drabinsky and Myron Gottlieb established Cineplex in the 1980s. Through it, they quickly became known in the movie theatre business in Canada, particularly for creating multi-screen theatres in attractive locations. In 1989, they left [page600] Cineplex, having acquired its live entertainment division, including the Canadian rights to Phantom of the Opera.

[8] Drabinsky and Gottlieb formed a partnership called MyGar. Through several wholly owned corporate vehicles, MyGar began to build a very successful live entertainment business, the first of its kind in Canada. We will refer to MyGar and its associated companies collectively as "MyGar".

[9] Gottlieb and Drabinsky operated through MyGar until the spring of 1993. On May 20, 1993, MyGar made a public offering of its shares (the "IPO") and became a public company known as Livent. Livent was, if not the first, among the first publicly traded live theatre companies.

[10] Drabinsky and Gottlieb were large shareholders in Livent and fully controlled its operations and management decisions. Through their efforts, Livent became one of the prime movers in the entertainment industry in North America and, to a lesser extent, in other parts of the world. The work of Drabinsky and Gottlieb brought both economic and cultural benefits to many cities, including Toronto. Livent produced many successful musicals, plays and concerts in Toronto, New York and Chicago, often in historic theatres that the company renovated, owned and managed. In the words of the trial judge, "Mr. Drabinsky was admired as 'one of the most innovative forces in the theatre.' Together with Mr. Gottlieb, he ran the company."

[11] Livent needed significant and continual infusions of cash to fund its very ambitious projects. Between 1993 and 1998, it raised over $500 million through share offerings, special warrants, notes, bond issues, debentures and bank loans.

[12] On April 13, 1998, Drabinsky announced a significant change in the management of Livent. New investors were to be brought in, led by Michael Ovitz, a well-known Hollywood figure. The Ovitz group was to oversee the management of Livent, allowing Drabinsky to devote his time exclusively to the artistic and creative endeavours of the company.

[13] The Ovitz deal closed in June 1998, and the new investors put their management team in place. It was anticipated that their business experience, combined with the creative talent at Livent, would ensure the continued upward trajectory of the company. However, the bright future anticipated when the Ovitz group arrived on the scene never materialized. Unbeknownst to the Ovitz group, the Livent financial statements were fraudulent and did not reflect the true financial state of the company.

[14] In the summer of 1998, shortly after the new management took over, its accountants began to ask questions. Several [page601] of the employees at Livent, who were aware of, and had participated in, the creation of the fraudulent statements, knew that the accountants would eventually uncover the deception. They went to the new management team and exposed the fraud hoping to protect themselves by doing so. New management immediately locked Drabinsky and Gottlieb out of Livent, retained litigation counsel and went to the regulators in Canada and the United States. Five months after the Ovitz deal closed, Livent declared bankruptcy. These charges eventually followed.

[15] Those acting for the Ovitz group viewed Drabinsky and Gottlieb as the persons responsible for the fraud. The former Livent employees were engaged to assist the new management team in their efforts to bring the fraud home to Drabinsky and Gottlieb. Maria Messina, the CFO at Livent who had been heavily involved in the creation of the fraudulent statements, went so far as to become an important and well-paid part of the new management's litigation team. Messina and Gordon Eckstein, a vice-president at Livent who was in charge of the accounting department, became the key prosecution witnesses.

B: The MyGar fraud (count one)

[16] Count one alleged that the financial statements of MyGar, relied on to promote the IPO in 1993, were fraudulent in that they deliberately overstated the value of MyGar's assets by about $6 million. The Crown alleged that the misrepresentations were material to investors' assessments of the merits of the IPO and that the economic interests of those who ultimately invested in the IPO were prejudiced by the misrepresentations in the financial statements.

[17] According to the Crown's theory, the MyGar fraud had its origin in a scheme hatched by Drabinsky and Gottlieb in 1990 to circumvent restrictions on the advances MyGar could make to them as its two shareholders. Under MyGar's lending agreement with its bank, advances to Drabinsky and Gottlieb were limited to fixed amounts. Drabinsky and Gottlieb wanted to take more money out of MyGar than the arrangements with the bank permitted. To do this, they entered into agreements with two persons whose companies did extensive construction-related work for MyGar. Pursuant to these agreements, Drabinsky and Gottlieb, or entities controlled by them, would bill those companies for fictional services and create fraudulent invoices to support those billings. The companies would pay Drabinsky and Gottlieb the amounts claimed for the non-existent services and then add those costs to the invoices submitted to MyGar for construction work actually done on the Pantages Theatre or the [page602] MyGar offices. This was referred to in argument as "the kickback scheme".

[18] Under the kickback scheme, the payments to Drabinsky and Gottlieb, which were in reality advances from MyGar, were hidden under fraudulent invoices for services never rendered by the appellants, as well as fraudulent invoices that inflated the amount claimed by companies who had done work for MyGar. Drabinsky and Gottlieb received payments totalling slightly over $8.1 million between 1990 and 1993.

[19] Most of the payments made to Drabinsky and Gottlieb under the above-described scheme were disguised in MyGar's financial statements as either fixed assets or preproduction costs. Eckstein, who came to work for MyGar in 1990 after the kickback scheme was in place, testified that Drabinsky and Gottlieb made the decision to book the kickbacks as fixed assets and preproduction costs. He would from time to time receive written instructions from Gottlieb concerning specific payments.

[20] The payments to Drabinsky and Gottlieb should have been recorded in MyGar's books as advances from MyGar to its shareholders. If, however, as the fraudulent scheme devised by Drabinsky and Gottlieb represented, the entirety of the payments had been for construction work, those amounts could properly be booked to fixed assets and preproduction costs. On Eckstein's evidence, Drabinsky and Gottlieb instructed that the kickback payments be treated for accounting purposes as what they appeared to be in the fraudulent documentation.

[21] Eckstein testified that before MyGar went public in the spring of 1993, he recommended to Drabinsky and Gottlieb that MyGar should take a $4 to $6 million write-down of its assets so that their inflated value, occasioned by the treatment of the fraudulent payments to Drabinsky and Gottlieb, would be removed from MyGar's financial picture before it went public. Eckstein testified that Drabinsky and Gottlieb emphatically rejected this proposal, saying that a write-down would "look terrible" and would interfere with the ability to market the IPO. Consequently, the MyGar financial statements used for the IPO showed assets of $90 million, an overstatement of about $6 million.

[22] The appellants admitted that they had devised and orchestrated the kickback scheme. They had, however, also put over $9 million back into MyGar during the same time period. They also submitted, correctly, that the kickback scheme was not the fraud charged in count one.

[23] Count one charged a fraud against the investors in the IPO through the misrepresentation of the value of MyGar's [page603] assets in the financial statements. Drabinsky and Gottlieb contended that they were unaware of that misrepresentation because they did not know that Eckstein, acting on his own, had disguised the payments as preproduction costs and fixed assets. The appellants argued that absent proof of that knowledge, they could not be convicted of the fraud alleged in count one.

[24] The trial judge summarized her reasons for convicting the appellants on the MyGar fraud as follows, at para. 487 [2009 12802 (ON SC), [2009] O.J. No. 1227 (S.C.J.)]:

I believe that Mr. Drabinsky and Mr. Gottlieb directed that the Kofman/Execway invoices be booked to fixed assets and preproduction costs. They had devised all aspects of this kick-back scheme themselves. Mr. Kofman, Mr. Wayment and the documents establish this. Mr. Eckstein only found out about the scheme when he saw large invoices which had no real backup. It makes perfect sense that Mr. Eckstein would ask what they were and how to book them. I accept his evidence that he was directed by Mr. Gottlieb and Mr. Drabinsky to book them to fixed assets and preproduction costs. Whether the instructions came on a sheet or sheets of paper, I accept that they came to him as instructions. By allocating the expenses in this way, the assets of MyGar were inflated. I accept Mr. Eckstein's evidence that he suggested a write down but this was refused by Mr. Gottlieb and Mr. Drabinsky. The assets of MyGar thus included invoices that were part of a kick-back scheme and so the statements were false.

C: The Livent fraud (counts two and three)

[25] The Livent fraud referred to in count two focused on the accounting practices employed at Livent between 1993 and 1998. The trial judge found a consistent pattern of artificially reducing expenses in the company's financial statements so that the reported net income would meet budget projections. She concluded that the appellants knew of this practice, and indeed ordered that it be done, so that Livent would appear to potential investors and lenders to be meeting its financial expectations. By creating a false impression of its net income, Livent was in a better position to attract new funding from various sources. That new funding was essential if Livent was to continue to grow and realize the dream of its founders that it become the premier live theatre company in the world.

[26] The trial judge found that a variety of accounting techniques were used to fraudulently reduce expenses and thereby increase net income. These included deferring operating costs from the accounting period in which they were actually incurred to future accounting periods, transferring expenses properly associated with one project to another project and improperly transferring operating and preproduction costs to fixed asset accounts relating to theatre construction. The relevant backup documentation was routinely altered to give apparent validity to [page604] the accounting representations. Indeed, the employees at Livent went so far as to modify accounting software to facilitate after-the-fact falsification of the documentation underlying the transactions that were fraudulently reflected in the accounting statements.

[27] The trial judge found that the fraudulent practices described above were a matter of routine at Livent and reflected "[t]he culture of cheating" begun at MyGar and continued with a vengeance at Livent (para. 454). The trial judge held that the culture was fully understood by the employees at Livent who went so far as to joke about going to jail for what they were doing. On her findings, Drabinsky and Gottlieb were at the centre of that culture.

[28] The appellants acknowledged that Livent's financial statements contained fraudulent misrepresentations. They argued, however, that it was not the accounting practices that were fraudulent, but rather the falsification of the backup documentation underlying the accounting statements. The appellants maintained that the accounting personnel at Livent, primarily Eckstein, initiated and engaged in the falsification of the underlying documentation on their own initiative and without any direction from, or knowledge of, either Drabinsky or Gottlieb. The appellants submitted that while the accounting treatment of various expenses at Livent might be described as "aggressive", there was nothing fraudulent about it. They submitted that Eckstein, because of his arrogance, incompetence and personal dishonesty, unilaterally and unnecessarily directed the falsification of documents to create justifications for the accounting treatment of various expenditures in the financial statements of Livent.

[29] The trial judge appreciated that it was not the use of specific accounting practices that constituted the fraud, but rather the arbitrary and unjustified use of those practices to achieve net income levels that reflected the projected ones. She said, at para. 427:

The defence submits that expert evidence was necessary to establish that the individual entries were justifiable. On a line-by-line analysis, some of the entries could be justified. What cannot be justified is the accounting system in place that arbitrarily moved numbers in order to reduce expenses and increase profits. Thus, even if some of the entries were justifiable, the cumulative effect of the manipulations is not. All the employees who made the manipulations spoke about the arbitrary nature of the adjustments and that the goal was to get income closer to budget. (Emphasis added) [page605]

[30] Later in her reasons, after setting out the law of fraud, the trial judge succinctly stated her ultimate finding of fact, at paras. 499 and 502-503:

They [Drabinsky and Gottlieb] knew and directed the accounting practices in order to keep the investment funds coming in. . . . . .

Mr. Drabinsky and Mr. Gottlieb were so devoted to the continuation of Livent that they directed the falsification of the financial statements in order to continue the flow of money to the company.

I am satisfied beyond a reasonable doubt that Mr. Drabinsky and Mr. Gottlieb initiated the improper accounting system and knew of its continuation throughout the years 1994-1998. The actions of Mr. Drabinsky and Mr. Gottlieb satisfy all three of the ways a prohibited act can be conducted: they were deceitful, they perpetrated a falsehood and reasonable people would consider them dishonest.

[31] The forgery charge (count three) stemmed from the same delict as the Livent fraud, namely, the falsification of Livent's financial statements. The appellants signed the statements provided to auditors, the board of directors and the public. On the trial judge's findings, the appellants knew these statements were false and intended that they be relied on as genuine. The forgery count was stayed after the conviction on the Livent fraud charge. Since we would uphold the fraud convictions, we need not examine the forgery count in any detail.

The Conviction Appeals

[32] There are numerous grounds of appeal. Some globally challenge all of the convictions, others are limited to the conviction on count one (MyGar fraud) and others challenge the convictions on counts two and three (Livent fraud). Most of the grounds of appeal apply to both appellants, but some apply only to Gottlieb. Before addressing the specific grounds of appeal, we will address those grounds at large and place them in the context of the conduct of the trial and the trial judge's reasons.

A: Overview

[33] The trial was lengthy and hard fought. Some of the evidence was complicated. The important witnesses testified for days. Lead counsel for the appellants, both among Canada's preeminent criminal counsel, left no stone unturned in challenging the Crown's case. However, in the end, the verdicts turned largely on two factual issues -- were the appellants aware of the admittedly false statements made in the financial statements of MyGar and Livent? [page606]

[34] The Crown relied heavily on the evidence of Livent employees, particularly Eckstein and Messina. All of the employees were implicated to some degree in the frauds. Eckstein and Messina were heavily involved. There were many reasons to question the credibility and the reliability of their testimony implicating the appellants, not the least of which was their obvious and powerful self-interest in assisting the prosecution. Eckstein had pleaded guilty in exchange for a non-custodial sentence and Messina had avoided prosecution altogether.

[35] The Crown acknowledged that the witnesses, particularly Eckstein and Messina, fell within the "unsavoury witness" category and that their evidence required careful scrutiny. The Crown submitted, however, that their testimony was supported by documentary evidence and the testimony of other witnesses. On a more general level, the Crown argued that it made no sense to suggest that Drabinsky and Gottlieb, who were very knowledgeable about financial matters and very "hands on" in their management and control of the day-to-day affairs of MyGar and Livent, could somehow be unaware for years of the ongoing rampant fraudulent activity at those companies. The Crown further submitted that Drabinsky and Gottlieb each had a strong motive. They were the most obvious and direct beneficiaries of the fraudulent activity because of their strong financial, personal and professional interest in MyGar and Livent. They personified the companies and the companies' success was their success.

[36] The defence, built primarily through cross-examination of the Crown witnesses, was essentially twofold. First, the appellants argued that the main Crown witnesses were entirely incredible for a variety of reasons, including their strong vested interest in assisting the prosecution to protect themselves from the consequences of their criminal activity. Second, the defence pointed to four unchallenged facts, which they argued, taken either individually or cumulatively, raised a reasonable doubt as to whether the appellants had the requisite guilty state of mind. The defence referred to these as the "four pillars of reasonable doubt". We will address those pillars when considering specific grounds of appeal. It is sufficient to say at this point that the defence alleged that each factual pillar justified inferences that were inconsistent with the Crown's claim that Drabinsky and Gottlieb had knowledge of the fraudulent activities.

[37] The trial judge's reasons demonstrate a firm grasp of the evidence, the issues raised and the positions of the parties. She was aware that the question of the appellants' knowledge of the fraudulent nature of the financial statements lay at the heart of [page607] the case. The trial judge analyzed each of the four pillars in some detail (paras. 434-50), but ultimately concluded, for the reasons she articulated, that none gave rise to a reasonable doubt as to Drabinsky's and Gottlieb's knowledge of the fraudulent nature of Livent's financial statements.

[38] The trial judge was also alive to the credibility concerns raised in connection with the various Crown witnesses. She closely examined the evidence of all of the witnesses and the defence submissions that their evidence should be rejected. She did not make global assessments of credibility and reliability but instead, as required, addressed the evidence of the various witnesses as it related to specific events and issues. The trial judge rejected some of the evidence offered by the main Crown witnesses as incredible or unreliable and accepted other parts of that evidence. Her careful review of the credibility and reliability concerns raised by the defence is particularly evident in her painstaking examination of the evidence of Eckstein and Messina. Ultimately, the trial judge rejected the defence arguments that these witnesses were totally incredible. She accepted significant parts of their evidence.

[39] On appeal, this court has jurisdiction to review findings of fact and credibility: s. 686(1)(a)(i) [of the Criminal Code, R.S.C. 1985, c. C-46]. That jurisdiction is, however, limited. This court cannot retry the case and substitute its opinion of the credibility of witnesses and the force to be given to fact-based arguments for the assessments made by the trial judge: R. v. W. (R.), 1992 56 (SCC), [1992] 2 S.C.R. 122, [1992] S.C.J. No. 56; R. v. Beaudry, 2007 SCC 5, [2007] 1 S.C.R. 190, [2007] S.C.J. No. 5.

[40] Counsel for the appellants appreciate the significant limitations on fact-based appeals. They have framed their arguments in appellate review-friendly language, alleging various misapprehensions of the evidence, failures to consider relevant evidence and failures to properly apply fundamental legal principles such as the presumption of innocence. However, stripped to their essentials, many of counsel's submissions invite and depend on a de novo evaluation of factual arguments raised at trial and considered and rejected by the trial judge in her reasons. Despite the language used to frame the submissions, many are, in reality, attempts to resurrect and reargue factual battles fought and lost at trial. Those arguments cannot succeed in this court.

[41] For example, counsel for Drabinsky attack the trial judge's rejection of the claim that the firing of Robert Topol was inconsistent with the defence assertion that Drabinsky and Gottlieb were unaware of the ongoing falsification of the accounting [page608] statements and records at Livent. This was one of the "four pillars of reasonable doubt" referred to above.

[42] Topol was a senior officer and director at Livent. The Crown claimed that he was aware of, and participated in, the Livent fraud. He was originally charged with fraud, but those charges were dropped.

[43] In 1998, Gottlieb learned that Topol had improperly sold certain Livent shares. Gottlieb pressed Drabinsky to fire Topol. Eventually, Topol left Livent. It is fair to say that he was forced out of Livent by Drabinsky and Gottlieb. The defence contended that the firing of a person who, according to the Crown, could implicate them in a massive fraud was inconsistent with Drabinsky's and Gottlieb's knowledge of an ongoing fraud.

[44] In Drabinsky's factum, counsel spend five pages explaining why the removal of Topol was inconsistent with Drabinsky's and Gottlieb's knowledge of the ongoing fraud. In the course of a detailed analysis of the evidence, counsel refers to the trial judge "misapprehending" evidence and "failing to appreciate" the significance of evidence.

[45] The alleged misapprehension of evidence flows from the trial judge's finding that Topol was leaving Livent in any event (para. 448). In fact, the evidence supports that observation, although there was some question as to when he would leave before the controversy arose over his sale of the shares. In any event, the trial judge's finding that the evidence concerning Topol's dismissal did not give rise to a doubt as to the appellants' knowledge of the fraud was not based on the timing of his departure. She decided that because Topol himself was heavily involved in the fraud, the appellants need not fear Topol's exposure of the fraud. This inference was a reasonable one that was open to the trial judge and is not based on any misapprehension of the evidence or failure to appreciate the significance of evidence. The defence submissions concerning the removal of Topol, like others advanced in this appeal, come down to the assertion that the trial judge should have accepted the argument they made. That submission cannot succeed on appeal.

[46] With the above overview in mind, we turn to some of the specific grounds of appeal. They fall into four categories:

-- arguments that globally attack the convictions;

-- arguments that target count one (the MyGar fraud); [page609]

-- arguments that target counts two and three (the Livent fraud); and

-- arguments referable to Gottlieb alone.

B: The global grounds of appeal

[47] There are two submissions that challenge all of the convictions. The first alleges inadequate reasons and the second contends that the verdicts are unreasonable. Neither was pressed in oral argument and neither requires detailed analysis. Both fail.

(i) The adequacy of the reasons

[48] The appellants submit that the trial judge's reasons, while detailed, are so inadequate as to render the verdicts a miscarriage of justice. Counsel submit that the lengthy reasons provide only a summary of the evidence and the positions of the parties, followed by a series of bald, conclusory statements leading to the verdicts. Counsel argue that the reasons do not demonstrate that the trial judge appreciated the central issues in the trial and do not reveal the analysis of those issues that eventually led to the verdicts: see R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869, [2002] S.C.J. No. 30; R. v. Dinardo, 2008 SCC 24, [2008] 1 S.C.R. 788, [2008] S.C.J. No. 24; Law Society of Upper Canada v. Neinstein (2010), 2010 ONCA 193, 99 O.R. (3d) 1, [2010] O.J. No. 1046 (C.A.).

[49] In support of the contention that the reasons are inadequate, the appellants refer to the trial judge's treatment of the evidence concerning the accounting practices used at Livent. They say that the reasons do not demonstrate that the trial judge appreciated the distinction between legitimate accounting practices, such as "expense rolls", and the fraudulent misuse of those techniques. They argue that the reasons suggest that the trial judge moved directly from a finding that certain accounting practices were used to the conclusion that the appellants were not only aware of those practices, but appreciated that they were being used to create a fraudulent picture of Livent's financial status.

[50] We reject the appellants' characterization of the trial judge's reasons. We are satisfied that those reasons reveal a full grasp of the distinction between the appropriate use of various accounting practices and the use of those practices to create fraudulent financial statements.

[51] In her detailed summary of the defence position, the trial judge outlined the defence contention that there was nothing inherently wrong with the various accounting techniques [page610] described in the evidence (paras. 312-16 [2009 12802 (ON SC), [2009] O.J. No. 1227 (S.C.J.)]). She clearly accepted that the accounting techniques were not inherently fraudulent. The trial judge went on, however, to find, based primarily on the evidence of Eckstein, which she accepted after a detailed review, that the accounting techniques were used to achieve projected net income levels by arbitrarily allocating various expenditures to reduce expenses and thereby increase net income. She found, at paras. 360-61:

I believe that Mr. Eckstein gave the management summaries to Mr. Drabinsky and Mr. Gottlieb and discussed the documents with them at management meetings. The documents were discussed in detail and, as time went on the nature of the directions to Mr. Eckstein evolved. It started with specifics and then became a direction to simply come up with the numbers that would match budget.

Mr. Drabinsky and Mr. Gottlieb were part of the decision and the direction to Mr. Eckstein that began this accounting system, the object of which was to get the numbers close to budget. As time went on and the company grew, they may not have been aware of every detail. They may not have been aware of the mechanisms by which the staff was implementing the adjustments. They may not have known about the computer programme change. They did not even know how to work a computer. However, they knew that improper adjustments were being made. They needed to have the adjustments made in order to have the income meet projections. (Emphasis added)

[52] The trial judge's reasons plainly show that she understood the evidence and the defence position. They further indicate that she appreciated that the essence of the Livent fraud allegations lay not in the accounting techniques used, but in the use of those techniques to obtain a desired projected net income figure instead of reflecting the reality of Livent's financial condition. That finding was central to her verdict on counts two and three and is fully explained and exposed for appellate review in the trial judge's reasons.

[53] Reasons for judgment must be read and assessed for their sufficiency in the context of the evidence adduced at trial and the issues raised. In the end, this long trial turned almost entirely on factual findings and, in particular, factual findings relevant to the appellants' knowledge of, and involvement in, the admittedly fraudulent representations in the financial statements. The trial judge's reasons reflect the nature of the case presented and argued before her. They canvass the evidence thoroughly and provide reasons for the credibility findings that were the foundation on which she made her central findings of fact. As the lengthy argument in this court over three days demonstrates, those reasons fully exposed the trial judge's analysis to meaningful and thorough appellate review. [page611]

[54] In a lengthy case like this one, it can hardly be expected that the trial judge's reasons will address each and every factual dispute arising from the evidence, or that the reasons will address each and every point made by counsel in argument. Some disputes are more important than others. Some arguments necessarily fail when others are rejected. The trial judge's reasons addressed all of the significant factual disputes and arguments made. Whatever shortcomings have been uncovered by appellate counsel's diligent efforts, they do not impair this court's ability to fully review the verdicts.

(ii) The reasonableness of the verdicts

[55] The second global challenge rests on the contention that the verdicts are unreasonable. There was ample evidence upon which a reasonable trier of fact could convict both appellants. Indeed, if the trier of fact accepted the thrust of the evidence of Eckstein and Messina, a conclusion which in our view was reasonably available, the evidence was overwhelming, particularly in the absence of any testimony from the appellants.

C: Arguments relating to the MyGar fraud

(i) Reliance on Eckstein's testimony

[56] Counsel for the appellants submit that the Crown's case on the MyGar fraud was "entirely dependent" on Eckstein's testimony and that, in light of Eckstein's admitted numerous credibility problems, the trial judge should have examined the trial record for evidence confirmatory of Eckstein's testimony on count one. They argue that there was no evidence confirming Eckstein's testimony that Drabinsky and Gottlieb told him how to book the payments in the financial records of MyGar and no evidence confirming his testimony that Drabinsky and Gottlieb refused to take a write-down on the value of the assets prior to the IPO. The appellants submit that the trial judge failed to even look for confirmatory evidence, but instead simply accepted Eckstein's testimony without critical examination.

[57] Eckstein's evidence was certainly important on the MyGar fraud count. He was the only witness to give direct evidence that he was told by Drabinsky and Gottlieb to book the kickbacks to fixed assets and preproduction costs. He was also the only witness to testify that Drabinsky and Gottlieb rejected his suggestion that a write-down should be taken before the IPO to eliminate the inflated asset values. [page612]

[58] We do not, however, accept the submission that Eckstein's evidence stood alone on count one. First, there was the appellants' admitted role as the instigators, architects and beneficiaries of the kickback scheme. It was that scheme that gave rise to the need to record those payments in a manner that would conceal their true nature. Second, the booking of the payments to preproduction costs and fixed assets was consistent with the fraudulent scheme devised by the appellants. The payments were misrepresented as costs associated with construction, project management and interior retrofits. Those costs, had they actually been incurred, would have properly been booked to preproduction costs and fixed assets.

[59] In our view, even without Eckstein's testimony, it could fairly be inferred that Drabinsky and Gottlieb, who created the kickback scheme and who were in complete control of MyGar, determined how the improper payments made to them should be hidden in the financial records of MyGar. It defies logic to suggest that Eckstein, who was not even at MyGar when the kickback scheme was implemented, would arrive at MyGar and unilaterally decide how the payments should be booked without any direction from his superiors, Drabinsky and Gottlieb. After all, it was Drabinsky and Gottlieb, and not Eckstein, who needed to hide the true nature of the payments.

[60] We also agree with the Crown's submission that there was some documentary evidence that tied Gottlieb directly to the allocation of the kickback payments to preproduction costs and fixed assets. Numerous cheque requisitions signed by Gottlieb referable to the overpayments to the companies who performed services for MyGar, and which contained the concealed payments to Drabinsky and Gottlieb, identified the accounts to which those payments were to be booked. It was open to the trial judge to treat this evidence as confirmatory of Eckstein's testimony.

[61] We reject the submission that the trial judge was not alive to the many credibility problems associated with Eckstein's evidence in general and, in particular, as it related to the MyGar fraud. The trial judge identified Eckstein as an unsavoury witness and cautioned herself in accord with the principles enunciated in R. v. Vetrovec, 1982 20 (SCC), [1982] 1 S.C.R. 811, [1982] S.C.J. No. 40. She detailed many of the problems associated with Eckstein's testimony (paras. 340-46). She rejected parts of his testimony as unworthy of belief. Specifically in respect of count one, the trial judge found confirmation of Eckstein's evidence in the central role played by Drabinsky and Gottlieb in all of MyGar's [page613] affairs (para. 347), and in that they were the ones who created the kickback scheme in the first place (para. 348).

[62] The evidence identified by the trial judge was capable of confirming Eckstein's evidence on the MyGar fraud count. With respect, counsel for the appellants' submission that confirmatory evidence must speak directly to the parts of Eckstein's evidence that the defence choose to put in issue (e.g., Eckstein's assertion that his suggestion of a write- down was rejected by Drabinsky and Gottlieb) is not consistent with the contemporary view of confirmatory evidence and harkens back to the extreme technicalities of the pre- Vetrovec era: R. v. Khela, 2009 SCC 4, [2009] 1 S.C.R. 104, [2009] S.C.J. No. 4, at para. 40.

(ii) Misapprehensions of the evidence

[63] Counsel also make various arguments challenging the convictions on the MyGar fraud under the rubric "misapprehension of evidence". There are four arguments.

[64] The defence submits that booking the kickback payments to MyGar's fixed assets and preproduction costs rather than to expenses was inconsistent with the appellants' financial interests. They submit that had the payments been booked to expenses, MyGar's net income would have been reduced, thereby reducing tax liability to the benefit of Drabinsky and Gottlieb, the two partners in MyGar. Counsel submit that Eckstein's evidence that he was instructed by Drabinsky and Gottlieb to book the payments to assets and preproduction costs makes no sense given the potential negative financial impact on them. Counsel submit that the trial judge did not take this evidence into consideration when assessing the credibility of Eckstein's assertion that, in booking the payments to assets and preproduction costs, he followed the instructions of Drabinsky and Gottlieb.

[65] The trial judge was alive to this submission and summarized it in her reasons (para. 254). She did not expressly address its merits, but we do not think she was required to do so. Her failure to expressly address this argument is not a reversible error.

[66] The appellants' argument ignores the nature of the fraudulent documentation created by, or at the request of, Drabinsky and Gottlieb to hide the payments they were taking from MyGar. That documentation, on its face, purported to describe expenditures properly booked to assets or preproduction costs. The recording of the expenditures in those ways in MyGar's financial records simply completed the fraudulent documentation needed to hide the true nature of the payments. [page614]

[67] There may have been some potential negative tax implications for Drabinsky and Gottlieb, although there was no evidence of the actual extent of those implications. The negative tax implications, however, paled beside the direct and immediate monetary benefits Drabinsky and Gottlieb received through the kickback payments. We think the trial judge's failure to specifically analyze and reject this submission indicates that to her, as to us, the argument has little force.

[68] The appellants next submit that the trial judge failed to take into account evidence that Eckstein had improperly booked expenses to assets when working for his former employer. Counsel submit that this evidence supported the contention that the decision to book the kickback payments to assets and preproduction costs was made by Eckstein on his own.

[69] The trial judge did not refer to this argument. There was, however, no evidence that Eckstein had booked expenses to assets while working for his former employer. There was evidence from one Crown witness that Eckstein had told that witness that he had done so. Eckstein denied that he had done so in his evidence. The witness's testimony of what he was told by Eckstein was not admissible for its truth. The trial judge cannot be criticized for failing to consider an argument for which there was no admissible evidence.

[70] The appellants next challenge the trial judge's acceptance of Eckstein's evidence that he was told by Drabinsky and Gottlieb how to book the MyGar payments. They do so by comparing that finding to a different finding based on similar testimony given by Eckstein involving the booking of certain payments in the Livent financial records in 1997. There was evidence that certain ticket purchases in 1997 were improperly booked to assets rather than to expenses. The Crown claimed that they were booked in that manner on the instructions of Gottlieb. The trial judge ultimately concluded that she was "not convinced that he [Gottlieb] knew where these ticket purchases were being booked" (para. 409).

[71] There is nothing inconsistent in the findings of the trial judge. Triers of fact do not make global determinations of a witness's credibility or reliability. As juries are repeatedly told, they may accept all, none or part of a witness's testimony. Here, the trial judge accepted part of Eckstein's evidence. There were significant differences in the evidence relating to the two events and the trial judge referred to some of these differences in concluding that she was "not convinced" that Gottlieb had directed the manner in which the ticket purchases were to be booked. Her analysis shows how carefully she examined the evidence. [page615]

[72] We also observe that it is not quite correct to suggest that the trial judge "rejected" Eckstein's evidence that Gottlieb gave directions as to the manner in which the ticket purchases should be booked. Rather, she was "not convinced" that Gottlieb gave those directions and she was satisfied that Eckstein [at para. 409] "could very well have made that decision alone". There is no finding that Eckstein lied.

[73] The appellants next allege that the trial judge failed to consider that Eckstein gave evidence that was demonstrably false when he testified that all of the kickback payments were booked as assets or preproduction costs. On the evidence of the Crown's forensic accountant, about 25 per cent of the payments ($2.3 million) were booked to expenses. Counsel submit that had the trial judge considered this proven falsehood when addressing Eckstein's credibility, she may well have come to a different conclusion.

[74] The trial judge did not refer to this part of Eckstein's evidence. Our review of his testimony satisfies us that he said different things at different times. In his statement to the police, which was put to him in cross-examination, Eckstein said that "some" or "most" of the payments were booked to production and real estate. In the same statement, he said "all of it was either booked to production or real estate". At trial, Eckstein testified that the payments were booked to preproduction costs and real estate. When confronted with the Crown forensic accountant's evidence that some of it was booked to expenses, Eckstein denied that he had said it was all booked to preproduction and real estate. He testified:

I never said that. I said I didn't know how everything that was going on. All I'm telling you is what was on the balance sheet.

[75] Eckstein's evidence, like his statement to the police, was unclear and contradictory on this point. That contradiction was certainly relevant to his credibility.

[76] As already indicated, the reasons of a trial judge cannot be expected to address each and every submission made in the course of a lengthy and complex trial. The failure to specifically advert to a given argument does not mean that it was not considered by the trial judge. To some extent, reasons for judgment, especially carefully crafted, detailed reasons like these, reflect the trial judge's assessment of the merits of the arguments put to her. Arguments that are central to a party's position and potentially persuasive will receive much more attention in the reasons for judgment than will peripheral non-decisive arguments. [page616]

[77] The trial judge's reasons, even though they do not refer to this particular contradiction in Eckstein's evidence, reveal a full and careful analysis of Eckstein's credibility. We are not satisfied that she failed to consider this part of his testimony or that the failure, if one occurred, had any impact on her ultimate evaluation of Eckstein's evidence.

(iii) The materiality of the misrepresentations

[78] In addition to the submissions going to the alleged errors in the trial judge's treatment of the evidence relating to the MyGar fraud, the appellants make a series of submissions that go to the materiality of the misrepresentation relied on by the Crown to support the fraud allegation in the MyGar count. The Crown alleged that the booking of the kickback payments to assets and preproduction costs inflated the assets' value in the 1992 MyGar financial statements by $6.8 million. The Crown further contended that the statements were relied on when promoting the IPO. On the Crown's theory, the misrepresentation of the value of the assets was material to the investing public's decision to purchase shares in the IPO.

[79] The appellants argue that, even assuming the Crown proved the appellants had knowledge of the misrepresentation in the financial statements, the trial judge erred in finding that it was material to the investment decision. The appellants rely on the following:

-- There was no evidence as to the actual amount of the overstatement of the assets in the 1992 financial statements;

-- the uncontroverted evidence established that the investing public looked to documentation referred to as the "selling piece", most notably income statements, and not to balance sheets; and

-- the uncontroverted evidence showed that the investing public, in looking for value, turned not to the balance sheets, but rather to the quality of MyGar's assets and the forecasted earnings. MyGar's (and after the IPO, Livent's) assets included valuable and very successful theatrical productions that, for accounting purposes, were valued at "zero" on the balance sheet. MyGar was, therefore, grossly undervalued on the balance sheet.

[80] Count one charged fraud "by making false representations as to the financial position and assets of MyGar partnership" in the documents relied on in support of the IPO. The [page617] Crown had to prove the appellants knew that the financial statements contained misrepresentations and that they were material to the decision to invest in the IPO.

[81] The trial judge addressed the materiality argument, at paras. 490-94 [2009 12802 (ON SC), [2009] O.J. No. 1227]:

The very nature of the IPO is that the public is being asked to invest its money in the company. The public is entitled to rely on all the financial statements in determining whether to risk funds. Principals of a company putting forward financial statements as part of the IPO package know this. Where the statements include a falsehood, the investor is at risk.

Indeed here, the falsehoods were deliberately left in the income statement [sic balance sheet] to attract (or to avoid deterring) investors. It was thought that a write off would have looked terrible. It follows that the true state of affairs would have been less attractive to investors. It follows that the lie was meant to induce investors.

The inclusion of a balance sheet that is false is an act of deceit, falsehood and dishonesty. Since members of the public are entitled to rely on these statements before risking their funds, there is potential risk to the public.

If the balance sheet is false, it is no answer to say that the investors would only look to the income statement. One cannot pick and choose sections that may be more or less important to a potential investor. The reasons for investing may be as diverse as the number of investors.

That the accused did not profit from the falsehood is irrelevant to the charge. That the public did not suffer is irrelevant to the charge.

[82] We agree with the trial judge's observations. As she stresses in the final paragraph, proof of actual loss is irrelevant. Proof of risk to the economic interest of the victim is sufficient: R. v. Théroux, 1993 134 (SCC), [1993] 2 S.C.R. 5, [1993] S.C.J. No. 42. It was not necessary to call further evidence on the question of materiality or to establish the exact amount of the overstatement. The trial judge's finding that the overstatement was in the order of $6.8 million was supported by the evidence.

[83] Materiality was a fair inference from the nature of the misrepresentations, the documents in which they appeared and the context in which those documents were used. Like the trial judge, we think it significant that the appellants, probably the most knowledgeable people about matters that were material to the success of the IPO, obviously regarded the overstatement of assets as material in that they declined to write down the inflated value of the assets for fear that doing so would have a negative impact on the IPO.

[84] The trial judge made no error in determining that the misrepresentations in the financial statements, relied on in support of the IPO, were material to the decision to purchase Livent shares through the IPO. [page618]

D: Arguments relating to the livent fraud

(i) Alleged failure to properly apply the presumption of innocence and the burden of proof

[85] As referred to above, the defence at trial referred to four unchallenged facts as "the pillars of reasonable doubt" on the Livent related charges. These pillars were

-- the appellants' decision to hire Messina in 1996 -- she had previously worked for the accounting firm that audited Livent's books and had a reputation as a sound and conservative accountant;

-- the decision by the appellants to enter into the transaction with the Ovitz group whereby they would surrender control over the management of Livent -- that decision contemplated a full outside due diligence review of Livent's financial records and the installation of a management team that would operate independently of Drabinsky and Gottlieb;

-- the firing of Robert Topol (see above, paras. 41-45); and

-- the evidence that Eckstein directed an employee of Livent to remove certain figures from summaries prepared for Drabinsky and Gottlieb, thereby "keeping the appellants in the dark" about the fraudulent adjustments being made in the financial statements.

[86] The defence argued that each of these factual pillars was inconsistent with the appellants' having knowledge of the ongoing fraud at Livent. For example, the appellants submitted that, on the evidence, they had no reason to believe that Messina, a respected chartered accountant from a reputable accounting firm, would go along with a fraud. It would therefore have been entirely illogical for the appellants to hire Messina if they knew about the fraud. The appellants argued that the hiring of Messina, if properly appreciated by the trial judge, would inevitably have left the trial judge with a reasonable doubt on the Livent charges.

[87] The appellants accept that the trial judge dealt at length with the "four pillars of reasonable doubt". They submit, however, that in doing so, she improperly placed an onus on the appellants to show that each was consistent only with a lack of knowledge of the fraud. Counsel submit that it was enough to raise a reasonable doubt if any of the four pillars was consistent [page619] with a lack of guilty knowledge even if it was also consistent with other explanations.

[88] The trial judge did not misapply the burden of proof in her analysis of the four pillars argument. The Crown is required to prove the essential elements of the offence beyond a reasonable doubt. Individual pieces of evidence, unless they represent the entirety of the evidence on an element of the crime, are not subjected to the reasonable doubt standard. The evidentiary value of the facts underlying each of the four pillars depended on what inference, if any, the trial judge drew from those facts. More specifically, the evidentiary value of those facts turned on whether the trial judge found that those facts informed in any way the appellants' state of mind as it related to the ongoing fraudulent activity at Livent. The inference to be drawn from primary facts is a core responsibility of the trier of fact. This court will defer to the trial judge's determination of the appropriate inference to be drawn absent a material error.

[89] The trial judge analyzed the entirety of the evidence relevant to the question of the appellants' knowledge. She was not prepared to draw any inference as to the appellants' state of mind from the facts underlying the four pillars. For the reasons she explained at some length (paras. 434-50), the trial judge regarded the acts underlying the four pillars as equivocal insofar as the appellants' state of mind was concerned. In doing so, the trial judge performed the function assigned to the trier of fact. She assessed the evidence and decided what inference, if any, she could draw from that evidence. She then applied the burden of proof to the totality of the evidence and the inferences she drew from that evidence.

[90] The trial judge's treatment of the evidence concerning the hiring of Messina, at paras. 442-45, demonstrates how she examined each of the four pillars:

The hiring of Maria Messina is not consistent only with a lack of knowledge of the fraud. There are other possible reasons which are consistent with knowledge on the part of Mr. Drabinsky and Mr. Gottlieb.

Ms. Messina was a member of the Deloitte & Touche audit team. That audit team had been duped by the fraudulent adjustments. Perhaps they wrongly assumed she would not find out. Perhaps they knew she would and then be drawn into assisting in the fraud out of fear or shame. Perhaps they believed that she would be "hooked" by the excitement of the company.

The notion of Maria Messina being hooked by the company was not far fetched. Despite the difficult work environment, there was enough of an appeal to keep people there for a long time. The company was high profile and dynamic. Tony Fiorino said it was exciting to work in the entertainment industry; it was not "like working for a company that was producing widgets." Even the computer programmer, Raymond Cheong, enjoyed the [page620] excitement of building theatres, putting on productions and going to opening nights. Perhaps they knew that Maria Messina was excited to be part of the business. Perhaps they counted on this to keep her there and thereby enhance the legitimacy of their improper accounting system by having her as CFO.

Whatever the reason for hiring Ms. Messina, the fact of her hiring does [not] raise a reasonable doubt. There are other plausible explanations beyond the ignorance of management. (Emphasis added)

[91] As the above analysis shows, the trial judge was unable to draw the inference urged by the appellants from the evidence of the decision to hire Messina. As the trier of fact, it was her job to decide what inference should be drawn. Without the inference urged by the defence, that evidence did not assist the appellants on the mens rea issue. The trial judge made no error in deciding what inferences should and should not be drawn from the evidence of the hiring of Messina.

[92] We will not address the similar arguments made in respect of the other pillars of reasonable doubt relied on by the appellants. The trial judge analyzed each of these submissions. That analysis was essentially the same as her analysis of the evidence involving the hiring of Messina. She did not accept that the evidence supported any inference as to the appellants' state of mind. She was entitled to take that view.

[93] The trial judge repeatedly and accurately articulated the burden of proof and applied it to the essential elements of the offence as they related to each appellant. Her analysis of the four pillars arguments reveals no error in her appreciation of the burden of proof or the presumption of innocence.

(ii) The misapprehension of evidence and the failure to appreciate the significance of evidence

[94] As with their submissions on the MyGar fraud, the appellants submit that the trial judge made several errors in her treatment of what the appellants contend was significant evidence on the Livent charges. We will address the main arguments individually. However, we begin by reiterating the observation made when addressing the alleged misapprehensions of the evidence involving MyGar. While many of the arguments are couched in terms of the misapprehension of evidence, or the failure to consider evidence, in oral submissions those arguments quickly evolved into attempts to have this court make its own assessment of the merits of the various factual disputes that had been litigated and lost by the appellants at trial. We cannot do so. [page621]

(a) The Q3/97 meeting

[95] The appellants submit that the trial judge misapprehended the evidence surrounding the meeting in the fall of 1997 to consider the third-quarter financial statements. This was referred to as the Q3/97 meeting. The appellants described the evidence of this meeting as the "linchpin" of the Crown's case on count two.

[96] Messina testified that Eckstein told her to prepare a set of documents for this meeting based on the actual accounting numbers and a second set based on the manipulated numbers that arbitrarily reduced expenses to increase Livent's net income. The documents were for the use of Drabinsky and Gottlieb at the meetings that preceded the finalizing of the quarterly statements.

[97] Eckstein testified that he had been preparing this kind of documentation for quarterly meetings since 1994. He first worked under the specific instructions of Gottlieb and Drabinsky, but as time went on, simply knew what to do and what was needed to produce a reported net income in line with budget predictions. Eckstein testified that, typically, he would prepare simplified summaries of the financial information for the appellants, comparing the actual numbers with those that he proposed to report in the accounting statements. Eckstein indicated that these documents were regularly discussed with the appellants at these meetings and that Drabinsky, in particular, took a dominant role in these discussions. According to Eckstein, the Q3/97 meeting was a typical quarterly meeting.

[98] The significance of the Q3/97 meeting from the Crown's perspective arose out of Messina's involvement. This was her first direct participation in the fraud and marked the stage in her employment when she appreciated the fraudulent nature of the activities at Livent. Her evidence was also the only oral testimony that confirmed Eckstein's descriptions of these quarterly meetings.

[99] In their factums, counsel for the appellants go through a detailed account of the Q3/97 meeting. The trial judge did the same in her reasons. The appellants submit that on the uncontroverted evidence, that meeting could not have occurred before October 29, 1997 at 11:18 p.m. They rest this submission on the assertion that the documents that Messina claims she prepared for Drabinsky's and Gottlieb's perusal could not have been prepared without the benefit of the general ledger containing the manipulations. That document was not available until 11:18 p.m. on October 29. The appellants further submit that on the [page622] uncontested evidence, the meeting could not have occurred after the afternoon of November 1, 1997, when the accounting material prepared at the meeting was submitted in its final form to the audit committee. The appellants complete their submission by reference to uncontroverted evidence that Drabinsky left the country at 10:00 a.m. on November 1, and was therefore available only for a few hours during the time period in which the meeting could have been held. The appellants submit that had the trial judge properly appreciated this evidence, she would have concluded that the meeting could not have occurred and would have rejected Messina's testimony.

[100] We agree with Crown counsel's submission that the defence position itself rests on a misapprehension of the evidence. Messina did not testify that she needed the manipulated general ledger documents to prepare the material for the meeting. She testified that:

I could prepare the pre and post [the documents requested by Eckstein] once I had the obviously preliminary G/L and then the directions from Mr. Eckstein with respect to the manipulations, because for my purposes, I didn't need the detail by show. I just needed the lump sum adjusting entry.

[101] Thus, on Messina's evidence, the meeting could have occurred prior to October 29.

[102] In her testimony, Messina initially put the meeting as occurring between October 20 and 23. She later indicated that it must have occurred closer to October 29. When it was suggested to her that the meeting must have occurred between October 29 and November 1 and that Drabinsky could not have been present, Messina said that while she may have the date wrong, she was 100 per cent certain that the meeting occurred.

[103] After thoroughly reviewing the evidence, the trial judge said the following, at paras. 376-77 [2009 12802 (ON SC), [2009] O.J. No. 1227]:

That said, I believe her evidence as to Mr. Drabinsky and Mr. Gottlieb's role in the fraud. In particular, I believe her evidence about the executive meetings in October 1997 and February 1998. Her evidence about the preparations for the meetings was consistent with the evidence of the other witnesses as to the way the statements were prepared. Her evidence was consistent with the documents that were prepared for the executive meetings. Her evidence about Mr. Drabinsky and Mr. Gottlieb being at the table where the documents were being discussed and the manipulations directed is consistent with that of Mr. Eckstein. Ms. Messina may have got the dates wrong for the October meetings, but I believe the meetings did take place.

Her evidence and that of Mr. Eckstein is also confirmed by the reality of Livent. It was created by Mr. Drabinsky and Mr. Gottlieb. It was their vision. They knew the business. They made it grow. They sold the business to investors. They participated in executive meetings. They knew the finances. The overspending was rampant. Their need for the funds to keep coming in was evident. As Mr. Drabinsky said in October 1997, they could [page623] not show a loss when money had just come in. Mr. Drabinsky said that they had just completed a bond offering and could not show a loss for the third quarter. He was referring to the October 1997 bond offering whereby Livent had received $125 million U.S. Mr. Drabinsky and Mr. Gottlieb knew what was happening with the books.

[104] It was open to the trial judge to accept Messina's evidence about the October Q3/97 quarterly meeting even though she could not pinpoint the date. There is no misapprehension of the evidence by the trial judge.

[105] The appellants buttress their attack on the finding that the Q3/97 meeting took place by pointing to the absence of any copies of the documents Messina testified were created for that meeting. They also refer to the very different accounts Messina has given of that meeting to different investigating authorities. The appellants submit that had the trial judge properly appreciated and considered that evidence, she could not reasonably have accepted Messina's evidence about the Q3/97 meeting.

[106] The trial judge considered these arguments at some length (at paras. 370-76). She concluded that Messina, "an expert in self-preservation", had destroyed any trace of the documents on her computer and lied to the authorities to reduce her exposure flowing from her participation in the frauds. This finding, yet another reason to view Messina's evidence with care, was open to the trial judge on the evidence. The finding is not inconsistent with Messina's testimony. While she attempted to portray herself more as a victim than a participant in the ongoing fraud at Livent, Messina did acknowledge that she removed documents from her computer because those documents implicated her in the fraud.

(b) Actual v. reported income

[107] The appellants submit that the trial judge took an "overly simplistic and entirely inappropriate" approach to the meaning to be given to certain documents provided to Drabinsky and Gottlieb for their review in the course of the preparation of Livent's quarterly or annual financial statements. Those documents contained entries that referred to "actual" numbers and "reported" numbers. The appellants contend that the trial judge erroneously equated the use of those words with the distinction between "real" numbers and "fraudulent" numbers. The appellants argue that the distinction between "reported income" and "actual income" is legitimate and well understood by accountants. According to this submission, the references to "reported" numbers simply referred to net income after all legitimate adjustments. [page624]

[108] The appellants' submission ignores the testimony from Eckstein describing these documents. The trial judge accepted that testimony (paras. 422-25). Eckstein testified that summaries were presented to Drabinsky and Gottlieb that contained two columns of numbers, one column represented the desired net income after manipulation and the other represented the actual expenses and losses. Eckstein testified that the distinction was made clear to, and understood by, Drabinsky and Gottlieb. Drabinsky and Gottlieb focused on the manipulated numbers in the meetings held to discuss the preparation of the financial statements. The trial judge's findings as to the meaning to be given to the words "actual" and "reported" was justified on the evidence she accepted.

(c) The misapprehension of Tony Fiorino's evidence

[109] The appellants allege that the trial judge misapprehended evidence given by Tony Fiorino, one of Livent's employees. They contend that Fiorino was told to delete certain information showing the improper transfer of expenses to fixed assets in financial records that were to be given to Gottlieb and Drabinsky. The appellants argue that the evidence shows that Eckstein told Fiorino to effectively keep Drabinsky and Gottlieb "out of the loop" insofar as the improper treatment of these expenses was concerned. This conduct, the appellants allege, was entirely inconsistent with Drabinsky and Gottlieb having knowledge of the fraud. Fiorino's evidence was one of the "four pillars of reasonable doubt" (see above, para. 85).

[110] The appellants submit that the trial judge misapprehended Fiorino's evidence when she indicated that Eckstein told Fiorino "not to include" the information in the schedules to be given to Drabinsky and Gottlieb. Counsel submits that Fiorino in fact testified that he was told to "delete" information from those schedules before giving them to Drabinsky and Gottlieb. The appellants argue that there is a significant difference between deleting information and not including information. They submit that the trial judge's failure to appreciate this difference caused her to miss the significance of Fiorino's evidence to the defence.

[111] The trial judge accepted that Eckstein told Fiorino that the transfer of certain fixed assets to expenses need not be included in reports prepared for Drabinsky and Gottlieb prior to the Q2/97 meeting. She said, at para. 439:

Mr. Fiorino said that Mr. Eckstein said it was not necessary to include the transferred amounts because management knew it was there. This is not exactly a direction to hide. Even if it were, no other employees were given [page625] those instructions. The attempt throughout was to be sure that management had all the information. They were given the P & L statements at the end of 1997 to remind them of the problems that were being shifted to 1998. This is the antithesis of keeping them out of the loop.

[112] The trial judge's findings are grounded in the evidence. Fiorino testified that when he asked Eckstein if the transfers should be included, Eckstein told him not to include the transfers because "everyone knows it's there". Fiorino also testified that although he had no direct contact with Drabinsky or Gottlieb, he never understood that they were being "kept out of the loop" in any way.

[113] The appellants' submission rests on an interpretation of one answer given by Fiorino read in isolation from the rest of his testimony. The trial judge was obligated to consider the entirety of the evidence. Nothing turns on the distinction between the words "not include" (language used by Fiorino in one answer) and the word "delete" (the language used by Fiorino in another answer).

[114] The trial judge clearly appreciated the defence argument. She ultimately accepted the explanation Eckstein gave to Fiorino for not including the transfers in the documents. As the trier of fact, it was her responsibility to make that decision.

[115] We would add, as stressed by the Crown, that the evidence of Fiorino related only to the removal of, or failure to include, certain entries in specific documents. That evidence had no effect on the evidence about other documents that were prepared for Drabinsky and Gottlieb that also exposed the fraudulent nature of the financial statements ultimately signed by Drabinsky and Gottlieb.

(d) The misapprehension of the nature of the fraud

[116] The appellants next argue that the trial judge fundamentally misunderstood what it was that made the Livent financial statements fraudulent. They submit that the trial judge wrongly equated the use of certain accounting practices to defer expenses with acts of fraud. This error led the trial judge to wrongly equate knowledge of the use of those accounting practices with knowledge of the fraud alleged in count two.

[117] The appellants submit that there was nothing inherently fraudulent about the use of the various accounting practices at Livent. Messina and the Crown's forensic accountant agreed that those practices were not per se illegal and could, depending on the circumstances, be appropriate. There could also be legitimate disagreements among accountants as to the appropriateness of various accounting decisions. [page626]

[118] The appellants maintain that the trial judge failed to appreciate that it was the destruction, recreation and manipulation of the Livent documents underlying various transactions that made the financial statements fraudulent. The appellants contend that because the trial judge did not appreciate the nature of the fraud, she never turned her mind to whether Drabinsky and Gottlieb had knowledge that the underlying documentation was being altered and forged on Eckstein's initiative. The appellants submit that the evidence demonstrated that neither Gottlieb nor Drabinsky had knowledge of Eckstein's fraudulent activities within the Livent accounting department.

[119] This submission cannot stand beside the trial judge's reasons. As indicated earlier (see above, para. 49 and following), the trial judge appreciated that the use of accounting practices to defer expenses was not in and of itself fraudulent. She held that the fraud lay in the arbitrary and unjustified used of various accounting practices to falsely inflate Livent's net income so that it would be consistent with projected income figures.

[120] In a related submission, the appellants contend that the trial judge erroneously equated a fraudulent intent with an intent to achieve projected income figures. There is no merit to this submission. It is self-evident that public companies strive to achieve projected income levels. The trial judge did not find that Drabinsky's and Gottlieb's desire to achieve projected incomes was fraudulent. She did find, however, that it was fraudulent to orchestrate the manipulation of Livent's financial records to achieve projected income figures when to the knowledge of Gottlieb and Drabinsky those figures did not reflect the ongoing financial reality at Livent.

(iii) The erroneous approach to the evidence of Messina and Eckstein

[121] The testimony of Messina and Eckstein was crucial to the Crown's case. They were accomplices in the frauds and had avoided or significantly mitigated their potential liability by co-operating first with the Ovitz management group and later with the Crown. The evidence of Messina and Eckstein changed in some respects in the course of their testimony and was shown to be inaccurate in other respects. Messina admitted she had destroyed relevant documents and lied to the regulators to protect herself.

[122] Just as at trial, the appellants in this court mounted a vigorous attack on the credibility of Messina and Eckstein. They allege that the trial judge made three material errors in her assessment of the evidence of Messina and Eckstein. They [page627] contend first that the evidence of both was so tainted by lies, inconsistencies and obvious bias that it was unreasonable to accept that testimony. Second, the appellants submit that the trial judge failed to give proper effect to her finding that Messina and another employee had colluded to give false testimony concerning a meeting in April 1988. Finally, the appellants submit that the trial judge erred in law in using the evidence of Eckstein to confirm the evidence of Messina and in using the evidence of Messina to confirm the evidence of Eckstein.

(a) Was the evidence capable of belief?

[123] The claim that the evidence of Eckstein and Messina was not reasonably capable of belief is a reformulation of the unreasonable verdict argument. There were many problems with the evidence of Messina and Eckstein. They were caught in many inconsistencies, exaggerations and, at least in the case of Messina, outright lies. Their evidence was inconsistent, in some respects, with other testimony. Both had spent years protecting their own interest by implicating Gottlieb and Drabinsky.

[124] Despite the many reasons for concern about the truth of anything Eckstein and Messina said, there was an abundance of evidence that confirmed many aspects of their testimony. The documents placed in the possession of either Drabinsky or Gottlieb (particularly Drabinsky) by the evidence were consistent with the description of the process that Eckstein and Messina testified was followed within Livent to regularly produce the fraudulent financial statements. That process involved the preparation of various documents for Drabinsky and Gottlieb by Livent employees followed by lengthy discussions in which the contents of those documents were discussed, modified and finalized as Livent's quarterly or annual financial statements.

[125] Beyond the documentation, the evidence from several sources of the central role played by Drabinsky and Gottlieb in all of Livent's financial affairs supported the testimony of Eckstein and Messina in which they described the process by which Livent's financial statements were manipulated. On their evidence, the fraudulent statements were the product of an institutionalized process that functioned on a day-to-day basis within the Livent office. Falsification of records was part of the office routine at Livent. 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. [page628]

[126] Livent's financial condition during the relevant time also offered some confirmation of the testimony of Eckstein and Messina. The ambitious schemes of Drabinsky and Gottlieb required a constant cash flow. Spending at Livent was excessive, if not out of control. The need to constantly find new financing sources was consistent with the motive for the fraud as described by Eckstein.

[127] Lastly, the unchallenged evidence that Drabinsky and Gottlieb were prepared to falsify corporate financial records to further personal financial goals while at MyGar offered some confirmation of Messina's and Eckstein's testimony that Drabinsky and Gottlieb continued to direct the falsification of documents after MyGar went public and became Livent.

[128] The trial judge knew how important the evidence of Eckstein and Messina was to the case for the Crown. She was fully aware of many reasons to question their credibility. After a detailed review of the evidence and a determination that their testimony was supported by significant confirmatory evidence from several sources, the trial judge chose to accept significant parts of the evidence of Eckstein and Messina. She did not act unreasonably in doing so.

(b) The failure to give effect to the finding that Messina and another employee colluded to fabricate evidence

[129] Christopher Craib, an accountant, joined Livent in 1997. He gave evidence about a meeting on April 24, 1998, which he attended with Eckstein and Drabinsky. According to Craib, Livent's financial records were manipulated at that meeting under Drabinsky's instructions by the reassignment of some $20 million in expenses. Craib testified that he was upset by the obviously fraudulent nature of the manipulations and, later that day, phoned his friend Messina to discuss the situation at Livent. Messina testified that Craib did telephone her and described the meeting to her at which the records were manipulated to reduce expenses by some $20 million.

[130] After a full summary of Craib's evidence, the trial judge rejected most of it. She found that there was no meeting on April 24, stating, at para. 387 [2009 12802 (ON SC), [2009] O.J. No. 1227]:

It is clear that this meeting on the afternoon of April 24 did not take place as described by Mr. Craib. The Crown suggests that the meeting may have taken place at another time. The collusion with Ms. Messina and the inconsistencies in Mr. Craib's testimony make it impossible to rely on anything he says regarding this meeting. (Emphasis added) [page629]

[131] The trial judge went on, however, to consider Eckstein's evidence about various meetings that were held to prepare and discuss the quarterly financial statements in April 1998. The trial judge ultimately accepted Eckstein's evidence that various meetings took place. She said, at paras. 393-94:

I have found that the meeting on April 24 did not take place. However, it does not change the fact that other meetings did. It also does not change the fact that the general system for quarterly reports was to present the summaries to management for approval. That in April 1998 it occurred differently from the way Mr. Craib described does not negate the remaining evidence that I believe. In particular, that Mr. Eckstein discussed these summaries with Mr. Drabinsky. He did not recall the date of the meeting. He did speak to him by telephone about adjustments. Mr. Drabinsky told him that they were going to have to make changes to meet the budget. Mr. Eckstein said: "He called me constantly."

Mr. Drabinsky and Mr. Gottlieb were not at a meeting on April 24. However, they participated in preparation of the quarterly reports. The process took weeks. The financial statements were not signed until after the executive meetings. The Q1/98 statements were not signed until May 27, 1998. It does not follow that because one meeting did not take place as described, the accused had no knowledge of the manipulations going on in the books of the company.

[132] The appellants describe the testimony about the April 24 meeting as "the centerpiece of the Crown's case". They submit that the trial judge could not reasonably find that Craib and Messina had fabricated their evidence in respect of that meeting and yet accept other parts of the evidence given by Messina and Eckstein about various meetings where the financial statements were manipulated.

[133] We see no connection between the trial judge's analysis of Eckstein's credibility and her finding that Craib and Messina colluded to give false evidence about a meeting on April 24, 1998. Eckstein was not implicated in that collusion. He was never part of the group that went to the new management to expose the fraud and save themselves. He had no friends among the former Livent employees. Eckstein did not testify about a meeting on April 24 attended by Craib. His credibility is untouched by the collusion between Craib and Messina.

[134] The appellants' submission also overstates the significance of the evidence concerning the April 24 meeting. The Crown did not allege that the Livent fraud was devised or implemented at any one meeting or at any series of meetings. The Crown alleged that fraud existed virtually from the outset of Livent and became part and parcel of the day-to-day operations at Livent. The fraud was ongoing and eventually so institutionalized that it was an accepted part of the working environment at Livent. [page630]

[135] As found by the trial judge, there was a process in place whereby primary data was collected by the Livent employees, summaries were produced for Drabinsky and Gottlieb showing actual numbers and manipulated numbers, discussions were held at which the numbers were further manipulated leading to the ultimate production of financial statements signed by Gottlieb and Drabinsky and delivered to the auditors and potential investors and lenders. That process, which was described in detail by Eckstein and others, did not depend on whether a particular meeting occurred on a certain day or whether Drabinsky and Gottlieb attended a particular meeting. The process depended on the occurrence of a pattern of events that repeated itself on a quarterly basis within the Livent offices. Establishing that pattern did not depend on proof that Drabinsky or Gottlieb attended a meeting with Craib on April 24, 1998.

[136] Nor do we see any support in logic or law for the proposition that a finding that Messina lied about one part of the evidence demanded the rejection of the rest of her evidence. Certainly, her collusion with Craib to give false testimony was yet another reason to view her evidence with great caution. It was not, however, a reason to reject the entirety of her evidence without careful scrutiny. The trial judge ultimately determined that her evidence about other meetings, particularly in October 1997 and February 1998, was credible not only because it was consistent with other testimony and documents but, perhaps most importantly, because it was "confirmed by the reality of Livent" (para. 377).

[137] The trial judge's finding that parts of Messina's evidence were untrue but that other parts were reliable, far from reflecting any legal error, demonstrates her careful and discerning examination of the entirety of Messina's evidence in the context of the rest of the evidence.

(c) Could the evidence of Messina confirm Eckstein's testimony and vice versa?

[138] The appellants acknowledge that the trial judge correctly identified Messina and Eckstein as Vetrovec witnesses and correctly articulated the principles governing the considerations of evidence given by those witnesses (paras. 338-39). Counsel submit, however, that the trial judge erred in law in holding that the evidence of Eckstein and that of Messina were sufficiently independent of each other as to be capable of providing confirmation of the truth of the evidence of the other. [page631]

[139] The trial judge recognized that evidence could be confirmatory only if it was independent of the evidence to be confirmed (para. 338). Evidence that itself depends on the credibility of the Vetrovec witness cannot confirm the credibility of that Vetrovec witness. The potential confirmatory evidence cannot be "tainted" by connection to the Vetrovec witness whose evidence it is said to confirm: R. v. Khela, supra, at para. 39.

[140] There is, however, no prohibition against the evidence of one Vetrovec witness confirming the evidence of another Vetrovec witness. The rule against so-called mutual corroboration has long passed from the evidentiary scene: see R. v. Linklater, 2009 ONCA 172, [2009] O.J. No. 771, 246 O.A.C. 303 (C.A.), at para. 11; R. v. Naicker, 2007 BCCA 608, [2007] B.C.J. No. 2626, 229 C.C.C. (3d) 187 (C.A.), at para. 34, leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 45. The question is not whether the witness is him or herself a Vetrovec witness, but whether the evidence of each witness is sufficiently independent of the evidence of the other to provide confirmation.

[141] The risk of collusion between witnesses goes to the independence of their testimony when considering whether the evidence of one can confirm the evidence of the other: R. v. Linklater, at para. 12. Collusion was a major plank in the defence platform. They argued that all of the Livent employees had colluded together to save themselves by falsely implicating Drabinsky and Gottlieb. There was significant evidentiary support for this position and the trial judge found collusion between Messina and Craib.

[142] The trial judge, however, rejected any claim of collusion between Messina and Eckstein. As she put it in the course of her review of Eckstein's evidence, at para. 358:

There is no evidence of collusion with Maria Messina. She intensely disliked him. By the end of 1997 they were barely speaking.

[143] The appellants have not pointed to any evidence from which one could infer collusion between Messina and Eckstein. The trial judge's finding on this issue is unassailable.

[144] The appellants argue, however, that the trial judge erred in focusing exclusively on the narrow concept of collusion. They submit that there was significant evidence that the testimony of both Messina and Eckstein was tainted by the access that each had to the testimony of the other. The appellants submit that in the course of her employment with the Ovitz litigation team, Messina had access to everything, including Eckstein's various statements. They further submit that Eckstein, as a co-accused of Drabinsky and Gottlieb for many months, had access to all of Messina's statements and testimony, including her preliminary [page632] inquiry evidence. Counsel contend that the trial judge was obligated to infer from this access that Messina's testimony was influenced by her knowledge of what Eckstein would say, and that Eckstein's testimony was influenced by his knowledge of what Messina would say. This tainting meant that the evidence of Messina and Eckstein was not independent of the evidence of the other and could not provide confirmation for the purposes of the Vetrovec analysis.

[145] It is true that Messina had access to virtually everything in the possession of the Ovitz litigation team, including various statements made by Eckstein. It is equally true that Eckstein, as an accused, had access to all Crown disclosure and all preliminary inquiry transcripts. There is, however, no evidence linking that access to anything to which Messina or Eckstein testified. When asked where the possibility of tainting was explored in the evidence, counsel pointed to one part of Eckstein's cross-examination. In that exchange, Eckstein denied reading the preliminary inquiry transcripts, although he acknowledged that he knew full well what the other witnesses would say about him.

[146] The risk that the independence of the evidence of Messina or Eckstein was tainted by access to the statements or testimony of the other was not pursued in any significant way at trial. The possibility of tainting, while clearly relevant, was not in and of itself enough to say that the evidence of one of those witnesses could not be independent of the other. Nor do we infer from the trial judge's failure to refer specifically to tainting that she did not appreciate its potential significance when assessing whether the evidence of one witness could confirm the evidence of the other. We interpret her silence rather as a reflection of the relative insignificance of the tainting claim when placed beside the powerful and partially successful collusion claim.

[147] Moreover, the evidence of both Eckstein and Messina was amply confirmed in material respect by the multitude of documents, the evolution of the fraudulent accounting practices from the kickback scheme initiated at MyGar and by Drabinsky's and Gottlieb's pervasive role in the operation of Livent. Tainting, either subconscious or deliberate, could not have infected any of this evidence.

E: The grounds of appeal applicable only to Gottlieb

[148] Counsel for Gottlieb submits that the trial judge failed to consider Gottlieb's liability separately and instead treated Drabinsky and Gottlieb as a single entity. As counsel puts it in his factum: [page633]

Rather than recognizing the individual roles of each Appellant at Livent, the trial judge merged them into one entity and simply assumed by virtue of the fact that they were co-owners and partners in the business that they were equally involved in the company's decision making.

[149] The trial judge's reasons refute counsel's submission. The trial judge appreciated the different roles played by Drabinsky and Gottlieb at Livent and acknowledged Drabinsky's more dominant role (para. 357). However, she accepted the evidence that came primarily from Eckstein and Messina that both Drabinsky and Gottlieb attended meetings where the financial statements were discussed and alteration directed by both Drabinsky and Gottlieb. On the trial judge's findings, both were fully engaged in those meetings (paras. 356-61, 377, 421, 498-99).

[150] In support of the submission that the trial judge did not give separate consideration to Gottlieb's liability, counsel refers to certain documents that, on the evidence, were routinely distributed to Drabinsky but not Gottlieb and some meetings that were not attended by Gottlieb. Accepting that there was evidence admissible against Drabinsky that was not admissible against Gottlieb does not diminish the force of the evidence that did implicate Gottlieb in the fraud. The trial judge's findings against Gottlieb are firmly planted in the evidence that she accepted.

[151] The trial judge specifically addressed the arguments solely applicable to Gottlieb that are renewed on appeal (paras. 456-64). She rejected those submissions because in her analysis they provided no answer to the direct evidence of Eckstein and Messina implicating Gottlieb in the process that resulted in the fraudulent manipulation of Livent's records. The trial judge was entitled on the evidence to come to that conclusion.

[152] We also accept the Crown's submission that the trial judge could have approached the allegation as one involving a common design as between Gottlieb and Drabinsky (and others) to commit fraud. The existence of the fraud was conceded. If Gottlieb's involvement was established by evidence directly admissible against him on the balance of probabilities, the acts in furtherance of the conspiracy by others, particularly Drabinsky, who was clearly a prima facie participant in the fraud, became admissible against Gottlieb. On this approach, many of the acts and declarations of Drabinsky were admissible against Gottlieb to prove his involvement in the fraud beyond a reasonable doubt: see R. v. Carter, 1981 158 (SCC), [1982] 1 S.C.R. 937, [1981] S.C.J. No. 102.

F: Conclusion on the conviction appeals

[153] The conviction appeals fail and the convictions are affirmed. [page634]

The Sentence Appeals

[154] Drabinsky received seven years on the Livent charge (count 2) and four years concurrent on the MyGar charge (count 1). Gottlieb received six years on the Livent charge and four years concurrent on the MyGar charge.

[155] Counsel for Drabinsky emphasize their client's physical disability and, as they did at trial, submits that a conditional sentence should be imposed. Counsel for Gottlieb stresses the absence of any evidence of financial loss caused to others by the frauds, the fact that greed was not the motive for the frauds and the lesser role played by Gottlieb. He submits that a sentence substantially below the six-year sentence imposed by the trial judge is appropriate.

[156] The Crown emphasizes the deference owed to the dispositions imposed by the trial judge, particularly given her careful reasons for sentence. The Crown argues that the sentences imposed at trial are not manifestly excessive and reveal no error in principle. Crown counsel ask that the sentence appeals be dismissed.

[157] In her reasons for sentence, at para. 25 [2009 41220 (ON SC), [2009] O.J. No. 3282], the trial judge, after referring to a long line of authority from this court, held that general deterrence and denunciation were of primary importance when sentencing persons who as officers and directors of public companies use their positions to engage in large-scale frauds that compromise the integrity of the public marketplace.

[158] Counsel for Drabinsky submit that the trial judge erred in principle by focusing on general deterrence and denunciation. They argue that there is little concrete evidence to support the contention that longer sentences provide more effective general deterrence than shorter jail terms.

[159] The deterrent value of any sentence is a matter of controversy and speculation. However, it would seem that if the prospect of a long jail sentence will deter anyone from planning and committing a crime, it would deter people like the appellants who are intelligent individuals, well aware of potential consequences, and accustomed to weighing potential future risks against potential benefits before taking action: R. v. Gray, 1995 18 (ON CA), [1995] O.J. No. 92, 76 O.A.C. 387 (C.A.), at pp. 398-99 O.A.C., leave to appeal to S.C.C. refused [1995] S.C.C.A. No. 116.

[160] In any event, this court and all other provincial appellate courts have repeatedly held that denunciation and general deterrence must dominate sentencing for large-scale commercial frauds. Denunciation and general deterrence most often find expression in the length of the jail term imposed. [page635]

[161] The amendments to the fraud provisions made in September 2004, while inapplicable to this case, both raise the maximum sentence and specifically identify certain factors found in sophisticated frauds as aggravating factors. Those are the same factors that have caused appellate courts to stress general deterrence and denunciation in the sentencing of those who engage in large-scale premeditated frauds on the public marketplace: see An Act to Amend the Criminal Code (Capital Markets Fraud and Evidence-Gathering), S.C. 2004, c. 3, ss. 2 and 3. The statutory amendments follow the sentencing path cut by the appellate courts.

[162] The appellants' argument that longer sentences do not enhance general deterrence ignores that the proper sentence quantification in cases like this is also driven by the need to publicly denounce the appellants' criminal conduct. The length of the sentence imposed is reflective of the appropriate level of denunciation.

[163] The trial judge correctly applied binding authority from this court as she was obliged to do. We see no reason to depart from that authority. The trial judge correctly emphasized general deterrence and denunciation in determining the appropriate sentences.

[164] After reviewing several authorities, the trial judge fixed the appropriate range of sentence for large-scale, premeditated frauds involving public companies at between five and eight years (para. 35). While one might quibble about both ends of that spectrum, the trial judge was correct in determining that crimes like those committed by the appellants must normally attract significant penitentiary terms well beyond the two-year limit applicable to conditional sentences.

[165] The trial judge did not, however, reject Drabinsky's submission that she should impose a conditional sentence merely because that sentence was outside of the range of sentencing for this kind of offence. The trial judge appreciated that it was her ultimate responsibility to fix a fit sentence having regard to all relevant factors. She understood that a proper application of the mitigating factors could in some cases result in a fit sentence that was outside of the applicable range: R. v. Nasogaluak, 2010 SCC 6, [2010] 1 S.C.R. 206, [2010] S.C.J. No. 6, at para. 44.

[166] It is impossible to catalogue the factors that in combination could justify a sentence below the usually applicable range. We would, however, make two observations. First, the investigation and prosecution of crimes like these is difficult and expensive. It places significant stress on the limited resources available to the police and the prosecution. An early guilty plea [page636] coupled with full co-operation with the police and regulators and bona fide efforts to compensate those harmed by the frauds has considerable value to the administration of justice. The presence of those factors, depending of course on the other circumstances, may merit sentences outside of the range.

[167] Second, individuals who perpetrate frauds like these are usually seen in the community as solid, responsible and law-abiding citizens. Often, they suffer personal and financial ruin as a result of the exposure of their frauds. Those factors cannot, however, alone justify any departure from the range. The offender's prior good character and standing in the community are to some extent the tools by which they commit and sustain frauds over lengthy time periods. Considerable personal hardship, if not ruin, is virtually inevitable upon exposure of one's involvement in these kinds of frauds. It cannot be regarded as the kind of unusual circumstance meriting departure from the range.

[168] In holding that prior good character and the personal consequences of the fraud cannot push the appropriate sentence outside of the range, we do not suggest that they are not relevant mitigating factors. They must be considered in determining where within the range the sentence should fall.

[169] The trial judge recognized the many mitigating factors advanced on behalf of the appellants. These included their many and diverse contributions to the community, particularly the cultural community, their strong family support, their sterling reputations in the community, the absence of any criminal record and, in Drabinsky's case, his significant physical disability. Drabinsky suffers from the effects of polio, a disease he had as a young child. His mobility is impaired and he is often in considerable pain. His problems will worsen with age.

[170] We agree with the trial judge's determination that the mitigating factors, while impressive, did not justify a departure from the established range of sentence. In particular, there is no evidence that Drabinsky's health problems, while significant, cannot be addressed by the correctional authorities. Certainly, on the trial evidence, Drabinsky leads a very full and active life, despite his very real disability. We think the trial judge was correct in determining that the sentences should fall within the range of sentences imposed for this type of offence.

[171] The appellants also submit that the trial judge gave inadequate weight to the appellants' motives. They stress that the crime was not one driven by greed. Livent was far from a "scam". The appellants did not set out to cheat MyGar and Livent investors with a view to leaving those investors with nothing while lining their own pockets. The appellants clearly [page637] believed that Livent would ultimately be a huge success and that everyone, including themselves, would benefit greatly by the existence of a thriving live theatre community in Canada and elsewhere. On this submission, the appellants' error lay in the means chosen to achieve a laudable end.

[172] The trial judge acknowledged that the appellants were not driven by "pure greed". She said, at para. 39:

The defence stress that this was not a case of "pure greed" as described in the jurisprudence and which has been considered an aggravating factor. Indeed, this was not a case of funds misappropriated for the acquisition of material goods. That said, the absence of this pure greed factor is not mitigating. Unlike some fraud cases, this was not a company set up for