Former broker handed three-year sentence in Knowledge House stock fraud case

HALIFAX – A former stockbroker described by a judge as the “competent tactician” in a multi-million dollar stock market fraud involving the Knowledge House e-learning company before it collapsed in 2001 was sentenced to three years in prison Friday.

Bruce Elliott Clarke appeared in Nova Scotia Supreme Court in Halifax, with his wife, daughters, sons and other relatives seated behind him as Judge Jamie Campbell issued the sentence, recommended by both the defence and Crown.

“Bruce Clarke was a conspirator in a multi-million dollar complex stock manipulation fraud,” Campbell read from his decision.

“He also defrauded a union pension fund of close to $900,000. Those are serious crimes for which only a significant period of time in jail is the fit and proper sentence.”

Clarke was facing six charges, but pleaded guilty late last year 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.

Campbell said the three-year sentence applied to both counts and would be served concurrently. No restitution was involved.

He said the magnitude, complexity, duration and degree of planning of the fraud were aggravating factors in sentencing.

“On any measurement the size of this fraud was significant,” Campbell said. “It is impossible to quantify the exact scale of the loss but there is no doubt that this involved millions of dollars.”

Each charge carried a maximum sentence of 10 years, but defence lawyer Barry Whynot said Clarke, who turned 71 a week ago, was remorseful and co-operated with an investigation that dragged on for years after charges were eventually laid in 2011 following the collapse of the company in 2001.

Campbell also noted Clarke had no criminal record and that his name had been publicly associated with the collapse of Knowledge House and with the offences since being charged in 2011.

“It is hard to imagine that his life has been anything like normal over that period of time,” he said.

Crown attorney James Martin described in court 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 in court. “He spent million of dollars over the course of 18 months doing what they could to make sure the price of Knowledge House did not fall.”

Martin said Clarke also invested $997,000 belonging to the carpenters’ union in Knowledge House, with the union ultimately being defrauded of $849,000 before it recovered some of that money.

Martin said the fraud amounted to $31 million in total.

He said the crimes were mitigated by the fact that Clarke pleaded guilty, was disciplined by the regulatory commission and endured public scrutiny during the investigation and the lengthy court proceedings.

Whynot said Clarke had good reason to believe Knowledge House would be a success, employing about 150 people at its offices in downtown Halifax in 2000. However, its fortunes changed dramatically when the tech bubble burst soon after.

The collapse and the subsequent charges ended Clarke’s career and left him in a legal limbo that went on for 15 years, Whynot said, adding that his client now works for a bus tour company in the summer.

“Mr. Clarke would like to pay his penalty to society and move on with the rest of his life,” he told the court.

Daniel Frederick Potter, who was CEO at the company, and Robert Blois Colpitts, the firm’s lawyer, were also charged in the case and their cases are still before the courts.

They were charged in 2011 with manipulating the company’s shares in the 21 months before the firm went under.

Last May, 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.

Judge Jamie Saunders said the money was owed to four investors who were affected when the company failed.

The court says the 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.

During the many legal cases that followed, National Bank secured a confidential agreement with the Nova Scotia Securities Commission concerning the role it played overseeing the actions of a broker involved in the stock trades.

Saunders said once that deal was revealed, it showed the bank didn’t properly oversee the actions of its broker.

– with files from Keith Doucette