Toronto impresario Garth Drabinsky and his business partner, Myron Gottlieb, cooked the books at Livent Inc., their once-dominant theatre production company, enriching themselves and raising $500 million on false pretences, a prosecutor alleges.

"The accused directed and participated in a large-scale accounting fraud that lasted over five years," Robert Hubbard charged yesterday as the curtain finally opened on their trial, six years after they were charged by the RCMP.

Drabinsky, 58, and Gottlieb, 64, stood in crisp suits beside their lawyers, the Greenspan brothers, Edward and Brian, and pleaded not guilty to two counts of fraud over $5,000 and one of uttering forged documents.

"We say they are the principals behind the scheme. They made it happen," Hubbard told Ontario Superior Court Justice Mary Lou Benotto.

The alleged fraud was dizzying in its scope, involving many of the now defunct company's shows, several suppliers and at least seven employees. Among the allegations:

Drabinsky and Gottlieb directed staff to inflate earnings, income and assets, allowing the company to maintain its share price.

• Suppliers were induced to issue invoices with false dates.
• Accounting software was changed to foil auditors.

Hubbard said he would file 20 Livent financial statements, all false.

At the end of each quarter, the defendants and two senior vice-presidents, Robert Topol and Gordon Eckstein, would review the company's financial results, Hubbard said. Drabinsky would then direct the understatement of expenses and the inflation of income and assets, the prosecutor charged.

In effect, Hubbard alleged, the company kept two sets of books, one real and the other fake.

Grant Malcolm, Livent's one-time production controller, is expected to testify that it was his job to ensure that false entries were made and concealed, Hubbard said.

Livent's deceptively rosy financial picture allowed it to raise more than $500 million, including $30 million on the TSE, $43 million in shares bought by Americans, and a $50 million line of credit from CIBC, he said.

In one alleged kickback scheme, Gottlieb would send false invoices to Peter Kofman, a project manager and real estate developer, for services never rendered. Kofman would pay the invoices, then bill Livent for legitimate services, plus the amount they had billed him, Hubbard said.

Some fake expenses were recorded as assets for MyGar, a company owned by the defendants, Hubbard said. MyGar's assets were later transferred to Livent, he said. This falsely inflated Livent's assets, a fraud so significant that, had it been discovered, the company could not have made an initial public offering of its shares, Hubbard said.

In another alleged scheme, Livent purchased large blocks of tickets worth $546,000 to a U.S. production of Ragtime in Kofman's name, making the show appear more successful than it was. The trial continues next Monday.

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