Fraud charges in Knowledge House case

The former CEO of a Halifax software company that failed almost a decade ago says he will vigorously defend himself against allegations he and two other men fraudulently manipulated the stock of Knowledge House Inc.

Daniel Frederick Potter was reacting Monday to the RCMP's decision to file criminal charges against him, as well as former lead director Robert Blois Colpitts and Bruce Elliott Clarke, a former broker with National Bank Financial.

All three face charges of conspiracy to commit fraud, fraud affecting the public market and fraud over $5,000, involving transactionsbetween January 2000 and September 2001.

Theyare scheduled to appear in Nova Scotia Supreme Court on April 28.

"I'm not going to go hide," Potter said in an interview from his Halifax home. "I'm going to fight it like the other stuff.

"They're just allegations. You need to remember that. They are not presumed to be true."

He said the Mounties' seven-year investigation dragged on for too long and will lead nowhere.

"These allegations have been flying around in one form or another for all that time," he said.

"The whole investigation that comes forward after 10 years is seriously flawed, horrendously delayed, and I'm going to take it on like I did the other people who came after me and are no longer after me. I have to put on my suit and go to court."

Clarke and Colpitts could not be reached for comment.

Shares in Knowledge House Publishing began publicly trading on the Montreal Stock Exchange in 1998 and on the Toronto Stock Exchange in 1999 after the company changed its name to Knowledge House Inc.

Collapse blamed on market decline

In March 2001, the company signed a contract with the Nova Scotia government to develop a series of internet-based courses to prepare high school students for university.

On Aug. 16, 2001, the company received a $1.2 million payment from the province, but less than a month later Knowledge House was out of business.

During a legislative committee hearing in 2001, Potter blamed the collapse on the general decline in the market for software and on tight capital markets.

National Bank Financial followed up with a series of lawsuits seeking nearly $10 million in margin calls from insiders relating to trades of Knowledge House stock.

Joan Beauchamp, a Montreal-based spokeswoman for National Bank Financial Group, said the institution would not comment on the case because several lawsuits are still before the courts.

Potter and others filed counterclaims against the brokerage.

On Monday, Potter said he is no longer a party to any civil lawsuits.

"No allegation that's ever been made against me has ever been proven. Every allegation has been withdrawn and settled, gone."

The RCMP commercial crime section started its probe after police received a complaint from the Nova Scotia Securities Commission. The Mounties confirmed they were looking into allegations of stock manipulation and insider trading at Knowledge House as early as September 2003.

RCMP Chief Supt. Blair McKnight declined to release details of the allegations. He said the complex case required years of dogged police work in Canada, the United States and Germany.

"The evidence surrounding this tends to be much more complex," he said in an interview. "As information and data moves about, the tracing and tracking of that information has to be done with a lot of diligence."

McKnight said it was impossible to say how much money investors lost, given fluctuations in the markets.

"Our hearts go out to the victims," he said. "We've heard some of the stories about people whose savings that were lost. We hope this provides some level of accountability."