While complex financial crimes can be difficult to investigate and prove, the Cinar and Livent cases serve to highlight the substantial risks of engaging in financial wrongdoing, not just for corporate executives who may be directly implicated, but also for those who assist in the wrongful activities.
The recent conviction and sentence imposed following the two year long criminal jury trial of Ronald Weinberg (“Weinberg”), co-founder of Cinar Corp. (“Cinar”), highlights the severe consequences facing those who carry out or assist in financial fraud and other white collar crimes. The Globe & Mail called Weinberg’s guilty verdict a “vindication for a Canadian justice system that has often been criticized for weak enforcement and a poor record for criminal convictions in the area of white collar crime”.
Weinberg and his late wife Micheline Charest (“Charest”) founded Cinar. They built it into a leading animation studio featuring iconic children’s programming like Caillou and Arthur. In addition to being a critical success, Cinar became a stock market darling, reaching a peak market capitalisation of $1.5 billion.
In 1999, allegations emerged that Cinar was falsifying the identities of scriptwriters to be eligible for subsidies based on Canadian content. Other allegations of financial impropriety followed. Following a lengthy investigation by the Sureté du Quebec, Weinberg was arrested and charged with fraudulently diverting U.S. $120 million from Cinar into Bahamian accounts held by private companies controlled by Weinberg and Charest. This was accomplished through what media reports described as “a byzantine series of transactions”.
After what is believed to be the longest-running criminal jury trial in Canadian history, Weinberg was convicted June 2, 2016 on nine counts, including on charges of fraud and issuing a false prospectus. His two co-accused, Lino Matteo and John Xanthoudakis, were also convicted of fraud and falsifying documents. The Crown alleged that Matteo and Xanthoudakis orchestrated the cover up of the fraud. Cinar’s former chief financial officer, Hasanain Panju, pleaded guilty to his role in the scheme and testified as a Crown witness against Weinberg and the other accused.
On June 22, 2016 Weinberg was sentenced to a total of nine years’ imprisonment. Matteo and Xanthoudakis were both sentenced to eight years. Panju was earlier sentenced to four years’ imprisonment. In his reasons for sentence, the judge highlighted the scale and sophistication of the fraud, and Weinberg’s leading role in it.
The Weinberg case echoes that of former Livent Inc. (“Livent”) executives Garth Drabinsky (“Drabinsky”) and Myron Gottlieb (“Gottlieb”), who were convicted of fraud and forgery for misstating Livent’s financial statements between 1993 and 1998. Drabinsky and Gotlieb were sentenced to seven and six years’ imprisonment, respectively. Both men also faced regulatory penalties.
While complex financial crimes can be difficult to investigate and prove, the Cinar and Livent cases serve to highlight the substantial risks of engaging in financial wrongdoing, not just for corporate executives who may be directly implicated, but also for those who assist in the wrongful activities. The Cinar and Livent cases are also examples of the systemic risk such frauds pose to the continued viability of the businesses affected, and the predictable fallout that can ensue from large-scale frauds: criminal proceedings, insolvency, shareholder class actions and personal claims against the corporation’s directors, officers, auditors and outside counsel. It is important that businesses implement robust policies and controls to safeguard their assets against the potential for fraud and other financial improprieties on the part of executives and employees.
Andrew I. Nathanson and Gavin Cameron are members of Fasken Martineau DuMoulin LLP’s White Collar Defence and Investigations Practice Group. You are invited to contact Andrew or Gavin if you have any questions regarding the Cinar case or other white collar crime issues. Aman Bindra also participated in the writing of this post.