Garth Drabinsky, shown here in Toronto on Dec. 18, 2006, went on trial Monday. ((Adrian Wyld/Canadian Press))

Garth Drabinsky and Myron Gottlieb pleaded not guilty to defrauding creditors and investors of millions of dollars as their trial opened Monday, in what is considered to be Canada's largest prosecution of alleged corporate accounting fraud.

Drabinsky whisked by reporters without commenting as he walked into a Toronto courtroom with his lawyer Eddie Greenspan on Monday morning.

Drabinsky and Gottlieb, who co-founded Livent Inc., once the largest producer of live theatre in North America, are each charged with two counts of fraud and one count of forgery. The charges stem from allegations of accounting irregularities in connection with their former theatre company, which produced such box office hits as Phantom of the Opera and Show Boat.

They are accused of raising $500 million in financing by misrepresenting the company's financial situation and misleading investors when the company went public in the 1990s.

Initially Drabinsky, Gottlieb and two other Livent executives were charged with 19 counts of fraud in 2002, following a four-year investigation into the business's books. 

But those charges have been trimmed down to three and now involve only Drabinsky and Gottlieb.

In its opening statement Monday, the Crown alleged the two men orchestrated a system of under-reporting Livent's expenses to make the company look good to investors.

The court heard that expenses were erased, balance sheets were altered to change losses to profits, and phoney invoices were prepared.

The Crown said it will call seven former Livent employees beginning next Monday to testify that their former bosses directed schemes to boost Livent's financial situation and value.

They will testify, the Crown said, that Drabinsky and Gottlieb were intimately knowledgeable and involved in the alleged fraud.

The Crown's main witness is expected to be Gordon Eckstein, formerly Livent's vice-president of finance.

Eckstein was given a conditional sentence of two years less a day after he pleaded guilty last year to one count of fraud.

Both Drabinsky and Gottlieb face similar charges in the United States, but they have refused to appear for trial and are wanted on international arrest warrants.

Livent, created in 1990, eventually grew to own theatres in Toronto, Vancouver, New York and Chicago. The company won critical acclaim for its productions, including Show Boat, Ragtime and Phantom of the Opera, and garnered 19 Tony Awards.

But the company sought bankruptcy protection in both Canada and the United States in November 1998. The company's new management — a team headed by former Walt Disney executive Michael Ovitz — subsequently fired Drabinsky and Gottlieb, saying they "fraudulently manipulated" financial records to hide losses of $100 million.

With files from the Canadian Press