Garth Drabinsky and Myron Gottlieb have been found guilty on fraud and forgery charges, with an Ontario judge saying they "systemically manipulated the books" at their now-defunct theatrical production company Livent Inc.

In one of Canada's most prominent fraud cases, Justice Mary Lou Benotto of Ontario Superior Court in Toronto ruled Wednesday that Drabinsky and Gottlieb were guilty of fraud and forgery in their running of Livent Inc. in the mid-1990s.

Livent co-founder Garth Drabinsky arrives at the Ontario Superior Court in Toronto to hear the verdict on Wednesday. Drabinsky and Myron Gottlieb were later convicted on fraud and forgery charges. (Chris Young/Canadian Press)

Prosecutors had maintained that Drabinsky and Gottlieb directed a scheme to make the ailing company look healthy, bilking investors of approximately $500 million.

Benotto said Wednesday the two men created "spectacular" successes on the stage, productions which brought Toronto, the company's home base, kudos from the worldwide theatre community.

But, the judge said, those successes were built upon a platform of falsehoods and manipulation as Gottlieb and Drabinsky artificially inflated the company's profits and depressed its costs to make Livent's financial situation appear rosier than it was.

After the verdict, Drabinsky and Gottlieb left the Toronto courtroom without comment.

The maximum possible penalty on a fraud conviction is 10 years in jail, while it's 14 years for a forgery conviction.

Spectacular rise and fall

The debate in the trial was not around whether Livent's books were cooked, but about who was the chef.

Livent rose to prominence in the 1990s by producing a string of hits in Canada and on Broadway including Kiss of the Spider Woman, The Phantom of the Opera and a revival of Show Boat.

Drabinsky became one of the leading lights in the Canadian and American entertainment sector, eventually garnering an Order of Canada for his efforts.

Livent's steep upward trajectory, however, was matched by an equally impressive fall when, in 1998, the firm was sold to a group of American investors, led by Hollywood heavyweight Michael Ovitz.

Ovitz's group quickly discovered that Livent's balance statements had as much substance as one of the company's stage settings and that the firm was in serious financial trouble.

Within four months, Livent was bankrupt and New York authorities began pursuing Drabinsky and Gottlieb on fraud charges.

Ontario officials eventually started their own inquiries into Livent, leading to fraud charges against the two men and a court case that began in May 2008.

Defence defeat

The defence for the two men had maintained that the fraud was led by lower-level employees, including senior vice-president of finance Gordon Eckstein, alleging they manipulated Livent's financial statements without the knowledge of either Drabinsky or Gottlieb.

But the judge did not agree with this argument, deciding instead to believe the prosecution.

Drabinsky and Gottlieb also face a 1998 fraud indictment in New York and 2001 charges filed by the Ontario Securities Commission.