Livent Case Study

Ming An

Professor Kevin G. Bell

BUSI 710 OL

10 July 2016

Case Study 2

Dear Livent board of directors,

After read through the instructional case about the financial fraud and irregularities of Livent, Inc. I realized that there are some issues in Livent, Inc. from internal and external control mechanisms. I`d like to analyze these issues and provide my personal recommendations for your further operations.

First of all, I`d like to write about external issues of Livent Company. Garth Drabinsky and Myron Gottlieb started the Live Entertainment Corporation in 1989 and went public at 1993. Around this period, one of the earliest elements of the fraud happened. They operated a kickback scheme with two Livent vendors to gain money directly from company into their own pockets. After that, they have to direct Livent`s accounting staff to obscure the financial problems. Next scam documented by the SEC was manipulated the box-office results. Arranged by the same two vendors from kickback scheme, they purchased several hundred thousand dollars of tickets and Livent payback the cost from various fixed asset accounts. Furthermore, in 1996, Drabinsky and Gottlieb started a new scam to embellish financial data. They used third party to sell their rights of product their shows by provide the third company from any loss on the deal and provide a rate of return on the large investment.

Second part is about internal issues. In the 1990s, Gordon Eckstein, the company’s Senior Vice-President of Finance and Administration and Maria Messina’s immediate superior allegedly instructed a subordinate to develop a computer software that would filtered the bogus data out of the company’s accounting records without leaving a paper trail. In addition, despite the efforts of Livent officials to sabotage their independent audits, the company’s Deloitte auditors was impaired by their reliance on two former colleagues who had been assigned to earlier Livent audits before accepting key accounting positions with the company. And what made matters worse for Deloitte was that Livent’s executives had a contemptuous attitude toward independent auditors.