July 7 (Bloomberg) -- Garth Drabinsky and Myron Gottlieb, the former Broadway producers with hits like “Ragtime,” have proposed to go on a Canadian lecture tour as part of their sentence for defrauding investors of millions of dollars, a plan rejected by a prosecutor as “a drastic departure” from the norm.

Drabinsky would teach theater students “discipline in the craft,” talk about honesty and “avoidance of unethical conduct” in visits to 65 schools across the country, as part of a sentence in which he would avoid jail, his lawyer Edward Greenspan told a judge at a sentencing hearing in Toronto today. Gottlieb proposed to discuss business ethics at six universities.

Drabinsky, 59, and Gottlieb, 66, were charged by police in October 2002 with lying about finances for nine years at the defunct theater producer Livent Inc. as they raised about C$500 million ($431 million) to buy theaters in Toronto, Chicago and New York and paid for increasingly lavish productions, including “Fosse” and “Phantom of the Opera.”

Ontario Superior Court Judge Mary Lou Benotto found both men guilty of two counts of fraud and one count of forging a document on March 25, more than 10 years after police began investigating what they called one of the biggest fraud cases in Canadian history. Each forgery count carries a maximum jail term of 14 years, and the maximum prison sentence for fraud is 10 years. She might sentence the two men on Aug. 5, the next time they’re scheduled to return to court.

Tony Awards

Drabinsky and Gottlieb founded Livent in 1990, expanding it into North America’s biggest theatrical producer. Drabinsky productions were nominated for 61 Tony Awards, winning 19 times, according to American Theatre Wing, the awards’ founder.

Prosecutor Alex Hrybinsky urged the judge yesterday to sentence the two men to 8 years to 10 years in prison. He reiterated today a prison term was necessary to deter others from engaging in similar conduct.

Neither of the men has acknowledged he’s done anything wrong, instead blaming former co-workers, accounting firms and legal firms for the situation, Hrybinsky said.

“How can anyone embark on a speaking tour to discuss business ethics and not mention the elephant in the room, which is Livent?” Hrybinsky asked. “The fraud destroyed Livent.”

Gottlieb has been punished since he was fired from Livent in 1998 in the midst of an accounting probe, his lawyer Brian Greenspan said.

Sold Homes

Gottlieb sold his family and vacation homes, mortgaged his current home to 100 percent of its value and earns in a year what he used to earn in a month, Brian Greenspan said.

He urged the judge to impose a conditional sentence, which could include house arrest, community service and probation.

Under Canadian parole rules, a person sentenced to 5 years in jail is usually eligible for release to a halfway house after serving a sixth of the sentence, or 10 months, Brian Greenspan said. A full parole is usually granted after a third of the sentence has been served.

“A conditional sentence has the same bite, the same teeth, as jail,” Brian Greenspan said.

Drabinsky and Gottlieb were convicted of falsifying Livent financial statements from 1989 to 1998, while they sold shares, warrants, debentures and senior notes worth C$460 million.

They also obtained lines of credit worth as much as C$60 million from the Royal Bank of Canada, Bank of Nova Scotia and the Canadian Imperial Bank of Commerce.

The case is between Her Majesty the Queen and Garth Drabinsky, P592/06, Ontario Superior Court of Justice (Toronto).

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: July 7, 2009 15:59 EDT