SECURITIES AND EXCHANGE COMMISSION Washington, D.C. Litigation Release No. 16033 / January 21, 1999 Accounting and Auditing Enforcement Release No. 1102 / January 21, 1999 SECURITIES AND EXCHANGE COMMISSION V. GARTH H. DRABINSKY, MYRON I. GOTTLIEB, ROBERT TOPOL, GORDON C. ECKSTEIN, MARIA M. MESSINA, DIANE J. WINKFEIN, D. GRANT MALCOLM and TONY FIORINO, 99 Civ. 0239 (TPG)(SDNY) (January 13, 1999) TONY FIORINO, FORMER LIVENT THEATER CONTROLLER, ENJOINED On January 21, 1999, the Commission filed a proposed final judgment of permanent injunction against Tony Fiorino, the former theater controller for Livent Inc. Fiorino consented, without admitting or denying the allegations of the Commission’s Complaint, filed on January 13, 1999, to the entry of the final judgment, which permanently enjoins Fiorino from his violative conduct and orders him to pay disgorgement and a penalty based on his insider trading in the securities of Livent while in possession of material nonpublic information. The Commission’s Complaint alleges that Fiorino, a Chartered Accountant, the Canadian equivalent of a certified public accountant, participated in a multi-faceted and pervasive fraud at Livent, a Toronto company that produces live theatrical entertainment, such as Ragtime, Show Boat and Fosse. The Complaint alleges that Garth Drabinsky, Livent’s former chairman and chief executive officer, and Myron Gottlieb, the company’s former president and a director, were the architects of a fraud which included: a multi-million dollar kick-back scheme designed to misappropriate funds for their own use; the improper shifting of preproduction costs, such as advertising for Ragtime, to fixed assets, such as the construction of theaters in Chicago and New York; and the improper recording of revenue for transactions that contained side agreements purposefully concealed from Livent’s independent auditors. The Complaint alleges that Drabinsky and Gottlieb manipulated income and operating cash flows throughout the relevant period and, in so doing, enlisted the support and assistance of numerous Livent personnel, including Fiorino. While in possession of material nonpublic information concerning the fraudulent conduct at Livent, the Complaint alleges, Fiorino also engaged in insider trading of Livent securities. The Complaint alleges that Livent’s former senior officers directed that various improper adjustments be made to Livent’s books, records, and accounts in order to manage income for each quarter to achieve a predetermined level. Senior management instructed the accounting staff to regularly process the adjustments to the books, records and accounts in such a way as to conceal their existence from the auditors and then prepared financial statements incorporating the adjustments. The Complaint alleges that, as the theater controller, Fiorino took costs that were fraudulently transferred from shows to theater cost accounts and then allocated them to various dummy accounts within the company’s fixed asset accounts. Fiorino created the dummy accounts, enabling Livent to conceal the transfers from Livent’s auditors. Fiorino tracked the costs improperly transferred to theater construction accounts by creating a numerical range of accounts in the general ledger in which he recorded the transferred amounts so that he could measure the true costs of Livent’s theater construction. Further, the Complaint alleges that Livent’s former senior management asked vendors to purchase tickets for Livent’s Los Angeles production of Ragtime for the purpose of reporting materially false information to industry press. The Complaint alleges that Fiorino participated in the fraudulent ticket purchase scheme by arranging the ticket purchases through the vendors and by arranging for payments to the vendors. The Commission’s Complaint sought to permanently restrain and enjoin Fiorino from violating or aiding and abetting violations of the antifraud, books and records, and internal controls provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and sought civil monetary penalties against him. Finally, the Complaint sought disgorgement, prejudgment interest and Insider Trading Sanctions Act (“ITSA„) penalties from Fiorino for insider trading. Fiorino consented, without admitting or denying the allegations of the Complaint, to the entry of the final judgment permanently enjoining him from his violative conduct. Fiorino was also ordered to pay $2,720.90 in disgorgement and prejudgment interest, and an ITSA penalty of $2,507.70. The final judgment does not order Fiorino to pay a civil monetary penalty based on his demonstrated inability to pay. Simultaneous with the filing of the final judgment, the Commission entered an administrative order related to Fiorino’s conduct described in the Complaint. Fiorino, a Chartered Accountant, consented, without admitting or denying the Commission’s findings, to an Order pursuant to Rule 102(e) of the Commission’s Rules of Practice, finding that he engaged in improper professional conduct and willfully violated the federal securities laws. The Order bars Fiorino from appearing or practicing before the Commission as an accountant, with the right to re-apply after three years. See In the Matter of Tony Fiorino, Chartered Accountant, Securities Act Release No. 7631, dated January 21, 1999. The Commission is continuing its investigation in this matter. 2 1