Crown seeking decade-long prison sentence for Knowledge House insiders
The prosecution made its case Tuesday for a "harsh and significant" sentence of between 10 and 12 years for the two central figures behind Nova Scotia's largest stock manipulation fraud.
The sentencing hearing in Nova Scotia Supreme Court in Halifax was for former Knowledge House president Dan Potter, 66, and securities lawyer Blois Colpitts, 55.
The pair were convicted in March on two counts of fraud connected to a 13-person conspiracy to artificially maintain share prices and to suppress share selling in the Halifax e-learning company.
Crown attorney Mark Covan, however, was challenged Tuesday by Justice Kevin Coady about his request for consecutive prison sentences of five to six years per conviction.
"It is a harsh and significant sentence," Covan told the court. "But we feel it is justified."
The high-flying information technology company flamed out in August 2001, triggering an unprecedented 17-year legal marathon through the civil and criminal courts.
Coady presided over the fraud trial, which lasted more than 150 court days and was spread over two years. That included a three-month break at the judge's request for his mental health.
The Crown estimated the fraud amounted to $87 million.
The calculation is based on the difference between the market value when the share price was trading at its high of $5.75 and what was left when it crashed to 33 cents when Knowledge House folded in August 2001.
The Crown said financial institutions were defrauded of $9 million, while individual investors lost $11 million.
In a pre-hearing filing, Potter said a prison sentence of three to four years was appropriate and urged the judge to reject the Crown's application for restitution.
The third ringleader in the stock manipulation was National Bank Financial stockbroker Bruce Clark.
Clark pleaded guilty to fraud charges in 2015 and was sentenced to three years in prison. He was paroled after serving six months.
Toronto lawyer Brian Greenspan, who was representing Potter Tuesday, introduced letters of support from some heavy hitters in Halifax. They included Peter Gurnham, a fellow lawyer and chair of the Nova Scotia Utility and Review Board, former Saint Mary's University president Colin Dodds, publisher James Lorimer and noted stock market veteran Bill Ritchie.
Greenspan spoke about the impact of the long-running case on Potter, who was 49 when his company folded.
"Mr. Potter's agony is the loss of the most productive years of his family and business life."
He disputed the Crown's sentencing request, arguing the three-year sentence handed to Clarke is more appropriate.
"The elephant in the room is fundamental parity."
Colpitts's lawyer, Jane Lenehan, argued for a sentence of less than three years in a brief submitted to the court.
She told the court that Colpitts was the Knowledge House lawyer and did not defraud clients. He also paid back money he borrowed to buy Knowledge House shares, she said.
"Mr Colpitts did not profit by these events," Lenehan said.
Sentence to come July 25
Greenspan dismissed the Crown estimate valuing the fraud at $87 million.
"They have no evidence to support their quantification of this fraud," he told the court.
He urged Coady to reject the Crown application for $13 million in restitution and argued the people and institutions who lost most heavily have not sought restitution from the court.
That includes Halifax philanthropist David Fountain, who lost $3 million. The court was told Fountain provided a letter saying he was not interested in pursing the matter.
Coady seemed leery of another Crown request — that the defendants provide a DNA sample.
Potter and Colpitts will return to court July 25 when Coady will deliver his sentence.
