Having already served his time following a fraud conviction over 5 years ago, a panel of the Ontario Securities Commission will ultimately have to determine whether future sanctions will be imposed on Garth Drabinsky, the co-founder and former director and officer now defunct, Livent Inc. During the opening remarks in Drabinsky’s OSC hearing, Drabinsky’s counsel acknowledged his client’s past role in directing a fraud at Livent, but urged the Panel to lessen the sanctions sought by Staff, which seek to restrict Drabinsky from trading securities in Ontario and acting as a director or officer of a company. Drabinsky’s request will require a thorough review and analysis of the rules and general principles applicable to the imposition of sanctions for securities misconduct.
Like one of its shows, the story of the rise and fall of Livent, and of Drabinsky himself, was dramatic theatre. Livent was co-founded by Drabinsky and was involved in the live entertainment business. It became a publicly traded company through an initial public offering in May 1993. Drabinsky held director and officer roles with Livent from 1993 until 1998. In the latter half of 1998 new management took over Livent and developed concerns that Livent’s prior financial statements contained misrepresentations. The financial irregularities led to the restatement of previous financial results, Livent being placed into receivership, and the ultimate suspension of trading in Livent shares in 2001 due to its failure to file the financial statements as required by Ontario securities law.
OSC proceedings were commenced against Drabinsky and others in July 2001 in relation to their conduct during their time as officers and directors of Livent. Related criminal fraud charges were brought against Drabinsky and others in October 2002, which lead to the adjournment of the OSC proceedings pending the resolution of the criminal charges. Drabinsky and fellow Livent co-founder Myron Gottlieb were found guilty in the criminal proceedings against them. At trial, the Ontario Superior Court of Justice held among other things, that Drabinsky and Gottlieb raised more than $500 million from the capital markets between 1993 and 1998. During this time they directed financial statements to be made which overstated assets, and concealed improper financial manipulations. The criminal convictions were upheld by the Court of Appeal for Ontario in 2011 and Drabinsky was sentenced to five years (reduced from seven years). Drabinsky was released from prison on day parole in February 2013 and was granted full parole in January 2014. OSC Staff filed an amended statement of allegations on February 20, 2013. Drabinsky’s hearing before the Panel commenced on February 22, 2017, with the major issue before the Panel in light of Drabinsky’s previous fraud conviction, being the appropriate sanction to order against him in the circumstances of his case.
Considerations for Sanctions Imposed by an OSC Panel
OSC panels have authority to order a broad range of sanctions, including but not limited to administrative penalties, cease trade orders, prohibitions against becoming an officer or director, and the termination of registration. In determining appropriate sanctions an OSC panel will consider the Ontario Securities Act’s purposes, which include the protection of investors and the fostering of fair and efficient capital markets. Additionally, along with the case specific factual considerations, OSC panels will also consider principles of proportionality, and specific and general deterrence. Any sanctions imposed by the Panel will seek to protect the public from future misconduct by Drabinsky.
Drabinsky is urging the Panel to allow him to own and manage his own company and to trade public securities for his retirement accounts. He argues that such an allowance would pose no harm to investors and would allow him the chance to continue his livelihood in the theatre and entertainment industry. Notably, in the case of Conrad Black, a case where the OSC was also asked to consider further sanctions after penal sanctions had already been incurred by a respondent, Black was convicted of fraud and obstruction and justice in the US District Court in Chicago. Black, whose prison sentence was reduced from 6.5 years to 42 months following appeal) ultimately served 37 months in prison and was released in May 2012. Upon his release, the OSC recommenced proceedings it had previously brought against Black and other Holinger International executives. In February 2015, the OSC decided to permanently ban Black from being a director or officer of a publicly traded company in Ontario.
The Panel deciding the fate of Drabinsky will undoubtedly have to wrestle with the facts of this case and the rules and principals involved in determining the appropriateness of further sanctions, particularly when penal sanctions have already been incurred by Drabinsky. The Panel’s eventual decision will be eagerly anticipated by all market participants and the general public alike.