An Ontario judge ruled yesterday that Livent Inc. co-founders Garth Drabinsky and Myron Gottlieb were guilty of fraud and forgery for manipulating the financial statements of Livent in the 1990s. The verdict, which came after an 11 year prosecution by the Crown attorneys, has sparked debate in Canada over the sufficiency and effectiveness of that country’s white collar fraud regulation.

The court ruled that accounting manipulations at Livent occurred “systematically” during the years Livent was a public company, and were “widespread and long-standing.” The Globe and Mail reports that Judge Mary Lou Benotto of the Ontario Superior Court found that “most importantly, I have been satisfied beyond a reasonable doubt that you knew what was happening with the financial statements.” The court apparently was not persuaded by the defendants defense, which the Crown previously characterized as “preposterous” and an “implausibly complicated conspiracy theory to explain how an accounting fraud occurred at the company for eight years without their knowledge.”

In Canada, the ruling is generating significant discussion. Some are calling the Livent case “Canada’s WorldCom” because it used methods that were not very sophisticated, and involved ethical breakdowns that came from the top down. Others are using this extremely rare securities crime prosecution to argue that Canada simply does not have the resources in place to properly prosecute fraud cases such as Livent. Len Brooks, a professor of accounting and business ethics at the University of Toronto, stated that

there are quite a few frauds being perpetrated that are being looked into, but we simply don’t have enough people on the fraud squads across the country, either in the police forces or the securities commissions, to pursue all or anywhere near all of the frauds that are reported. There is a risk that we are missing some significant ones.

Activist investor advocate Diane Urquhart argues that Canada needs an entirely new white-collar-crime policing unit to replace the RCMP-centered Integrated Market Enforcement Teams. The Canadian Press reports that since 2003, this “IMET” system has been in place and spending $30 million or more annually with no prominent convictions. Indeed, Nick Le Pan, a former superintendent of financial institutions, told the Canadian Press that the RCMP corporate-crime teams “are understaffed, feebly supervised and ravaged by officer turnover, while their white-collar targets ‘bring substantial high-quality resources to bear to defend themselves.’”

Professor Brooks also observed a definite difference in the “prosecutorial appetite” for pursuing white collar fraud in Canada as compared to the U.S., where prosecutors such as Eliot Spitzer and Patrick Fitzgerald launch high-profile attacks on fraudsters. He stated that in Canada, “we don’t have a national regulator; we don’t have regulators that are equipped to pursue these matters in court quickly. We have to wait on Crown attorneys, who have other cases involving crimes of passion and so on, to get around to dealing with these matters.”