Livent, Inc: an Instructional Case
LIVENT, INC.: An Instructional Case
Michael C. Knapp Professor University of Oklahoma
Price College of Business 307 W. Brooks Norman, Oklahoma 73019
Office phone: 405-325-5784 mknapp@ou.edu
Carol A. Knapp Visiting Associate Professor University of Oklahoma
Price College of Business 307 W. Brooks Norman, Oklahoma 73019
ABSTRACT: Like many financial frauds, the Livent, Inc. fraud was masterminded by a few individuals, primarily Garth Drabinsky, a Broadway “impresario” who had received several Tony Awards for Livent’s theatrical productions. However, numerous individuals were eventually drawn into Livent’s fraudulent schemes by Drabinsky. The Livent fraud unraveled following the takeover of the company by an investment group headed by former Hollywood power broker and Disney executive, Michael Ovitz. Shortly after assuming control of Livent, Ovitz’s new management team reported “massive, systematic, accounting irregularities that permeated the company.” Subsequent investigations by various regulatory authorities, including the SEC, resulted in numerous civil lawsuits and criminal indictments being filed against Drabinsky and his former associates. Two features of the Livent fraud were particularly disturbing to SEC officials. First, the company’s accounting staff developed computer software to allow senior management to track both Livent’s “real” numbers and the fraudulent manipulations of those numbers. Once the manipulations were created, the so-called accounting “adjustments” appeared in Livent’s accounting records as if they were the original transactions, thus eliminating a paper trail. The second troubling feature of the Livent fraud was the matter-of-fact manner in which the company’s management team and accountants organized and carried out the fraud. The Livent scandal had several features shared with other major financial frauds. These common features included an extremely aggressive, growth-oriented management team, a history of prior
Michael C. Knapp Professor University of Oklahoma
Price College of Business 307 W. Brooks Norman, Oklahoma 73019
Office phone: 405-325-5784 mknapp@ou.edu
Carol A. Knapp Visiting Associate Professor University of Oklahoma
Price College of Business 307 W. Brooks Norman, Oklahoma 73019
ABSTRACT: Like many financial frauds, the Livent, Inc. fraud was masterminded by a few individuals, primarily Garth Drabinsky, a Broadway “impresario” who had received several Tony Awards for Livent’s theatrical productions. However, numerous individuals were eventually drawn into Livent’s fraudulent schemes by Drabinsky. The Livent fraud unraveled following the takeover of the company by an investment group headed by former Hollywood power broker and Disney executive, Michael Ovitz. Shortly after assuming control of Livent, Ovitz’s new management team reported “massive, systematic, accounting irregularities that permeated the company.” Subsequent investigations by various regulatory authorities, including the SEC, resulted in numerous civil lawsuits and criminal indictments being filed against Drabinsky and his former associates. Two features of the Livent fraud were particularly disturbing to SEC officials. First, the company’s accounting staff developed computer software to allow senior management to track both Livent’s “real” numbers and the fraudulent manipulations of those numbers. Once the manipulations were created, the so-called accounting “adjustments” appeared in Livent’s accounting records as if they were the original transactions, thus eliminating a paper trail. The second troubling feature of the Livent fraud was the matter-of-fact manner in which the company’s management team and accountants organized and carried out the fraud. The Livent scandal had several features shared with other major financial frauds. These common features included an extremely aggressive, growth-oriented management team, a history of prior