Former Knowledge House insiders handed prison terms in massive fraud case

Dan Potter,once hailed as a star ofNova Scotia's private sector,is headed to prison for helping orchestratea massive fraud prosecutors estimated at $86 milliononethat led to the longest and most complicated criminal trialin the province's history.

The 66-year-old former CEO of e-learning company Knowledge House was sentenced Wednesday in a Halifax courtroom to five years in prison, while co-conspirator and lawyer BloiseColpitts, 55, was handed 4years behind bars.

Nova Scotia Supreme Court Justice KevinCoady sentenced the pair for their rolesin a stock manipulation scheme that cost investors millions of dollars and 120 company employees their jobs.

Knowledge House was a high-flying technology company traded on the Toronto Stock Exchange before its 2001 collapse. On Wednesday,Coadycalled Potter the "mastermind" behind the fraud,addingColpittsused his legal skills and reputation to carry out the crime.

"Mr.Potter was the silver-tongued mastermind, the architect of the conspiracy, who exerted his influence to manipulate and control other shareholders," Coady said.

"He dictated who could sell shares, when they could sell, and how much they could sell."

Coadyfound the pair guilty in March of carrying out fraudulent activities in a regulated securities market.In a 207-page ruling,the judgesaid they artificially maintained the company's stock price while securing new investors, who would make investment decisions based on a misleading impression of the stock demand.

On Wednesday, the judge saidColpittswas "the enforcer" who used"his position as counsel to threaten legal action against anyone who might derail the conspirators' efforts."

"Although Mr. Colpitts's role in these offences was not as substantial as that of Mr. Potter, his use of his legal skills and reputation to assist the conspiracy is an aggravating factor that makes him as blameworthy as Mr. Potter for the offences," Coadysaid.

The judge notedboth Potter andColpittshave maintained their innocence throughout the criminal trial, portraying themselves as victims and refusing to express any remorse.

"There are many victims here," Coadysaid. "But Dan Potter andBloisColpittsare not among them."

A third man charged in the case, former stockbroker Bruce Elliot Clarke, pleaded guilty in 2015 andwas sentenced to three years in prison.

The trial began in November 2015 and heard from 75 witnesses over more than 160 court days, and 184 exhibits were received,including thousands of documents.

Federal Crown prosecutors hadargued for a sentence of 10 to 12 years in prison for Colpitts and Potter, but Coadydismissedthat submission as overly harsh, givenlegal precedent.

He alsodismissed a call from prosecutors for the pairto pay$13 million in restitution. It meansthe men won't have to pay back any money investors lost in the collapse of Knowledge House.

The Crown estimated the fraud at $86 million, but the judge noted in his decision he would not put a specific dollar figure on the scheme, calling it a "large scale multi-million dollar fraud that resulted in significant economic harm to investors and financial institutions."

Coadysaid the Crown could have charged as many as 13 people, easily five as co-conspirators, and it would be inappropriate to have the "lynchpins to the operation"pay the restitution.

After deciding to prosecute just three people, Coady said,"the Crown cannot expect this court to make restitution orders against Mr. Potter and Mr. Colpittsfor all the qualifiable losses the Crownattributes to the fraud."

Lawyers for both offenders brushed by reporters outside the courtroom Wednesday and refused requests for comment. Prosecutors also did not comment.

Knowledge House had once been thedarling of Nova Scotia's tech sector. Not long before the company's 2001 implosion, the provincial government named Potter the chair of Crown corporation Nova Scotia Business Inc. and said he had some of the best private-sector expertise in the province. Potter resigned just months later.

The sentencing of Potter and Colpittsis closure to former Knowledge House employeeSean MacGillivray, whoworked there beginninginlate 2000.

"I think my appetite for hearing about it has been exhausted and I do feel like there is, for mepersonally anyways, some closure in the decision," MacGillivray said.

He said in a sense, he feels justice was served.

"Given how old both of the defendants are now, I think the sentence is reasonable, I guess. I'm glad that they're actually going to do jail time," MacGillivray said.

Lasting impact

MacGillivray remembers hearing rumblings that something was going wrong with the company during the time he worked there. He said people who had stock in Knowledge House noted it was plummeting about a month and a half before it shut down.

MacGillivray remembers the day everyone in the office was told theirjobs were gone. It was three days after the Sept. 11 attacks.

"We were all called into a central part of the office and informed by one of thehigher ups that the company was no more," he said.

"People were weeping openly, people had just got mortgages, they werehaving kids, had plans to get married, building their lives on top of this livelihood they were making and they were just told abruptly for a lot of them, very little warning that it was all done basically. So yeah, it was quite awful."

While many of his memories of working at Knowledge House were positive, MacGillivray said he lost confidence in working for publicly-tradedcompanies. In the years since his time at Knowledge House, he said he's only worked for non profits or privately-held companies.

Read more stories at CBC Nova Scotia