Verdict expected in complex stock fraud case

HALIFAX — A verdict is expected today in the multi-million-dollar stock market fraud case stemming from the collapse of Halifax’s Knowledge House e-learning company.

Former president and CEO Daniel Potter and lawyer Blois Colpitts are jointly charged with a series of frauds.

Their trial began in November 2015 and heard from 75 witnesses during about 150 court days; 184 exhibits were received, including thousands of documents.

“Describing this trial as complex and unique would be a gross understatement,” Nova Scotia Supreme Court Justice Kevin Coady wrote in August 2017 in one of many mid-trial decisions.

Knowledge House Inc. was once a high-flying developer of educational software, trading on the Toronto Stock Exchange before collapsing in 2001.

The Crown alleges that between January 2000 and September 2001, Potter and Colpitts manipulated the price of the company’s shares. Shares in Knowledge House began trading publicly on the Toronto Stock Exchange in 1999, and went from a few cents to more than $9 before suddenly collapsing.

Coady is expected to hand down a verdict today, as well as a decision in a Charter application brought forward by the defence.

Colpitts and Potter were among three people charged in 2011 with conspiracy to commit fraud, fraud affecting the public market and fraud over $5,000, following a seven-year RCMP investigation. The third person, former National Bank stockbroker Bruce Elliott Clarke, was sentenced in April 2016 to three years in jail after pleading guilty to conspiring to affect Knowledge House’s share price and defrauding a trust fund established by the United Brotherhood of Carpenters and Joiners of America of more than $5,000.

In 2015, Nova Scotia’s Court of Appeal ordered National Bank Financial to pay $3 million in punitive damages for the way it dealt with investors who lost money when the technology firm collapsed.

Federal Crown prosecutor James Martin described in court at the time how Clarke used three main techniques to elevate the price of Knowledge House shares and spur on buying by investors. He said he used different accounts to continually buy the stock to make sure the price didn’t decrease and, in the process, spent millions to keep the stock price rising. He said Clarke also actively discouraged people from selling their stocks.

“This was an incredibly sophisticated fraud,” Martin said, adding the fraud amounted to $31 million in total.