Garth Drabinsky and Myron Gottlieb are headed to jail; the Ontario Court of Appeal today dismissed their conviction appeals: R v Drabinsky, 2011 ONCA 582. They wont be spending as much time there as was originally thought however.

Drabinsky and Gottlieb established Cineplex in the 80s. The two quickly built that business to great success and in 1989 left Cineplex after acquiring its live entertainment division. The two then formed a partnership called MyGar. This company operated until the sprint of 1993 when it made a public offering and became a public company known as Livent.

Drabinsky and Gottlieb were large shareholders in Livent and fully controlled its operations. The business was a notable success. In 1998 there was a significant change in the management of Livent when new investors came in to run the financial side of the business.

The new accountants began to ask some questions. It turned out that the books of Livent had been fraudulently altered and did not reflect the true financial state of the company. Drabinsky and Gottlieb were immediately locked out of the company and the new investors began to pursue them in relation to the fraud.

Livent declared bankruptcy five months later.

Drabinsky and Gottlieb were ultimately charged and convicted. Drabinsky was sentenced to seven years jail and Gottlieb to six years [para 154]. They appealed.

After dismissing the conviction appeal the court turned to consider the sentence appeal. In doing so the court considered, inter alia, the argument advanced that the judge erred in principle by focusing on general deterrence; the appellants argued that there was "little concrete evidence to support the contention that longer sentences provide more effective general deterrence than shorter jail terms" [para 158]. In response thereto the court held:

[T]his court and all other provincial appellate courts have repeatedly held that denunciation and general deterrence must dominate sentencing for large scale commercial frauds. Denunciation and general deterrence most often find expression in the length of the jail term imposed [para 160]; [emphasis added].

The court then considered the range of available sentences and offered the following comments in relation to the suitability of the sentence:

First, the investigation and prosecution of crimes like these is difficult and expensive. It places significant stress on the limited resources available to the police and the prosecution. An early guilty plea coupled with full cooperation with the police and regulators and bona fide efforts to compensate those harmed by the frauds has considerable value to the administration of justice. The presence of those factors, depending of course on the other circumstances, may merit sentences outside of the range.

Second, individuals who perpetrate frauds like these are usually seen in the community as solid, responsible and law-abiding citizens. Often, they suffer personal and financial ruin as a result of the exposure of their frauds. Those factors cannot, however, alone justify any departure from the range. The offender’s prior good character and standing in the community are to some extent the tools by which they commit and sustain frauds over lengthy time periods. Considerable personal hardship, if not ruin, is virtually inevitable upon exposure of one’s involvement in these kinds of frauds. It cannot be regarded as the kind of unusual circumstance meriting departure from the range [paras 166-167].

Nonetheless, the Court of Appeal held that the failure of Livent could not be attributed solely to the appellants. The causes of the failure were "numerous and complex"; the losses caused by the bankruptcy cannot be laid "entirely at the feet of Drabinsky and Gottlieb" [para 182]. In the absence of proof of the actual financial loss a sentence lower than that imposed was appropriate.

Based on this finding - one which was not made by the trial judge - the Court intervened and reduced the sentences to five years for Drabinsky and four years for Gottlieb.

DG Mack