By Canadian Press

Convictions of executives upheld in historic Nova Scotia fraud case

Feb 5, 2020 | 1:05 PM

HALIFAX — Two executives once referred to by a judge as the mastermind and enforcer of a multimillion-dollar stock market scheme were jailed this week as Nova Scotia’s highest court upheld their convictions.

Daniel Potter, the former chief executive of technology firm Knowledge House, and former lawyer Blois Colpitts were found guilty in March 2018 of conspiracy to manipulate the firm’s share price and carrying out fraud in the securities market.

They were sentenced in July of that year but have been out on bail since shortly after their sentencing, awaiting the appeal result of one the longest and most complex prosecutions of white-collar crime in the province’s history.

Potter and Colpitts reported to a prison on Tuesday at 1 p.m., the day before the release of the appeal decision, as required under their bail conditions.

Crown and defence lawyers confirmed their incarceration is now underway, more than 18 years after the e-learning company’s dramatic collapse.

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A unanimous decision dated Tuesday by three Nova Scotia Court of Appeal justices found the trial judge didn’t err in determining the two men were responsible “for the vast majority” of legal delays in the case.

The judges wrote Nova Scotia Supreme Court Justice Kevin Coady’s findings that the executives committed fraud “was firmly anchored in the law and facts.”

Coady had sentenced Potter, in his late 60s, to five years and Colpitts, in his late 50s, to four-and-a-half years, noting there was little chance they would reoffend.

The appeal court judges ruled against a federal Crown effort to increase those sentences, saying “less punitive sentences could faithfully serve the primary objectives of denunciation and deterrence in this case.”

The unanimous nature of the Nova Scotia Court of Appeal decision means the Supreme Court of Canada would have to grant leave for further appeals.

Jane O’Neill, one of Potter’s defence lawyers, said her client’s legal team is reviewing the decision before deciding on next steps. Colpitts is self-represented.

The trial began in November 2015 and heard from 75 witnesses over more than 160 court days, and thousands of exhibit documents.

Knowledge House, once a Halifax technology darling, developed software the company promised would revolutionize the elementary, high school and post-secondary education systems.

Court has heard the co-conspirators used a variety of manipulations to prop up the firm’s share price, including using so-called margin accounts to dominate the buy-side of the market.

They also suppressed sales and employed “high closing” the stock, or entering orders late in the trading day to boost the closing share price.

Coady in his trial decision referred to Potter as “the silver-tongued mastermind, the architect of the conspiracy,” while Colpitts was “the enforcer” who used his position as counsel “to threaten legal action against anyone who might derail the conspirators’ efforts.”

The tech company traded on the Toronto Stock Exchange before it collapsed in August 2001, sending Knowledge House stock plummeting to 33 cents a share from $5.10.

Though the Crown had estimated the fraud was about $86 million, Coady said he would not put a specific dollar figure on the scheme, instead calling it a “large scale multimillion-dollar fraud.”

Mark Covan, one of the three prosecutors with the federal Crown who worked on the case, said Wednesday he welcomed the appeal court decision.

“White-collar crime is incredibly difficult to investigate and very, very expensive to prosecute. It’s one of the few large-scale stock market fraud cases we’ve successfully prosecuted in Canada,” Covan said.

This report by The Canadian Press was first published Feb. 5, 2020.

Michael Tutton, The Canadian Press