MFDA bans former rep for recommending unsuitable strategy

The Ontario Securities Commission (OSC) has banned former theatre impresario Garth Drabinsky permanently for his role in the Livent fraud — rejecting his plea for sanctions that would’ve still allowed him to work as a theatre producer.

Specifically, the OSC’s decision, issued on Friday, has ordered that Drabinsky be banned from serving as a director or officer, from registration, from relying on exemptions and from trading, except for his own retirement savings accounts.

The ruling brings to a close regulatory proceedings that began against Drabinsky and a couple of his associates in 2001. The OSC case was put on hold for concurrent criminal proceedings, which ultimately resulted in Ontario Superior Court of Justice convictions against Drabinsky. He finished serving his sentences on those convictions last September and the OSC revived the case earlier this year, seeking sanctions to ban Drabinsky from Ontario’s capital markets.

The OSC’s staff argued that Drabinsky should be banned from the markets because “he was a senior director and officer of a public company who abused his positions of trust by carrying out a large-scale fraud,” the decision states.

Drabinsky acknowledged that sanctions are warranted, but he argued that proposed permanent bans “are improperly punitive” and would prevent him from returning to work as a producer in the entertainment industry.

“He proposes that the sanctions be varied to allow carve-outs, which he submits would allow for his continued work as a creative producer and facilitate his tax and estate planning, but would still provide public protection,” the OSC’s decision says.

Ultimately, the OSC ruled against Drabinsky’s bid for carve-outs from the bans OSC staff sought. “Drabinsky is essentially asking us to endorse alternative definitions of ‘director’ and ‘officer’ from those set out in the [Securities] Act,” the decision states.

“The proposed carve-outs could operate in such a manner that Mr. Drabinsky could, in reality, take all the restricted financial actions and then have them rubber-stamped by others,” the OSC’s decision adds. “The restrictions may be adhered to in form and not in substance, eviscerating the protective intent of the sanctions and creating enforcement challenges.”

In addition, the OSC ruled that the proposed carve-outs would be problematic without a way of verifying that they are being followed.

“However, such ongoing monitoring would impose an undue burden on staff and treat Mr. Drabinsky very differently than respondents in other enforcement proceedings involving fraudulent conduct. Our order should be final and should not include subjective elements requiring ongoing supervision,” the OSC’s decision says.

“Allowing for carve-outs with potential loopholes that would allow Mr. Drabinsky’s participation in the capital markets … would not fulfill the commission’s protective mandate. In addition, the existence of such loopholes affects general deterrence by creating a complex set of restrictions that, on close scrutiny, are open to evasion.”

The OSC did accept proposed carve-outs to Drabinsky’s trading ban that will allow him to manage his retirement accounts, subject to certain conditions.

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