GO get em boys
herald.ns.ca
Knowledge House countersuits exceed $10m
By Eva Hoare / Business Reporter
The lawyer representing five Nova Scotia men being sued by National Bank Financial in a case involving now defunct Knowledge House says his clients' countersuit against the bank stands at more than $10 million.
"I haven't put that together, but let's put it this way, it's certainly well in excess of $10 million," Dale Dunlop of Halifax said in an interview.
"And that includes no wiping out of any claim from the bank," he said.
Mr. Dunlop, who gave his first interview on the case late last week, said it's "by far" the biggest securities legal action he's ever been involved with.
"It's taken well in excess of a year, to get a handle on . . . what I think the big picture is."
Knowledge House went out of business in the fall of 2001 after its stock plummeted.
Mr. Dunlop's clients include former Knowledge House executives Calvin Wadden and Craig Dunham; Ken MacLeod, former Knowledge House vice-president; and Lowell Weir and Mike Mahoney, both Knowledge House investors.
Mr. Wadden and Mr. Dunham had sold their businesses, Micronet and Innovative Systems respectively, to the educational technology firm. The men were then given senior positions at Knowledge House. Both say the transactions were stock deals.
All of Mr. Dunlop's clients, plus several more companies and individuals in some way associated with Knowledge House, are being sued by National Bank Financial for allegedly having a total of up to $10 million in margin account shortfalls. The shortfalls, it is alleged, are tied to Knowledge House stock the men once owned.
Mr. Wadden's alleged margin account shortfall stands at just over $1 million and Mr. MacLeod's about $1.8 million. The bank is seeking just over $360,000 from Mr. Dunham.
The shortfalls, the bank alleges, are related to trades in Knowledge House stock.
The slew of lawsuits filed by National began in 2001 and were followed by the five men's defences and counterclaims. The counterclaims, filed in Nova Scotia Supreme Court, allege a former National broker, Bruce Elliott Clarke, former Knowledge House CEO Dan Potter, and its former lawyer, R. Blois Colpitts, were involved in manipulating Knowledge House stock to keep it artificially high.
Mr. Potter and Mr. Colpitts have denied all such allegations, which have yet to be proven in court.
In addition to alleged stock manipulation, Mr. Dunlop's clients allege they couldn't sell their Knowledge House shares to recoup their investments because Mr. Clarke refused to sell them, court documents state.
Now the five are seeking what they allegedly lost from National Bank, and there are at least two securities-related investigations underway into what happened.
"Whatever we think we can prove in terms of what my clients had in terms of value when they started dealing with the National Bank and what they ended up with," we'll go after that, said Mr. Dunlop, adding their counterclaim targets only National Bank Financial.
The Investment Dealers Association began a probe last year and has done multiple interviews, flying its investigator to Halifax as recently as a couple of weeks ago.
"It's fair to say there's no question in my mind that the IDA is taking this very seriously," Mr. Dunlop said.
"There is an active IDA investigation and my clients are co-operating fully. It's fair to say it was my clients who initiated that process."
An association spokeswoman said no comments could be made.
The Toronto Stock Exchange, where Knowledge House once traded, is also looking into several allegations, said Mr. Dunlop.
"I'm advised that the investigative arm of the TSE has an active investigation ongoing, although my contact with them has been limited. . . . (The investigation is) surrounding the circumstances of Knowledge House, I don't know specifically what they're (checking)."
Wendy Day, spokeswoman for RS, the TSE's investigative branch, said Monday that RS is "aware" of Knowledge House, but said she couldn't confirm whether a probe is underway.
Meanwhile, Scott Peacock, head of enforcement at the Nova Scotia Securities Commission, said Monday he couldn't "comment as to whether or not we are conducting an investigation."
Mr. Dunlop, who said he and National lawyers are now in the midst of exchanging reams of documents, added discovery meetings as part of the pending civil trial will likely begin in late fall.
The document-exchange process is expected to last well into June, the lawyer said.
"I think we're in the last stages. Certainly from the bank's perspective and my clients, everyone's interested in moving ahead as fast as possible so I'm hoping we'll complete this by the end of June to the satisfaction that everyone's got what they want.
"From then, of course, the next step is discoveries."
Lorie Haber, a senior official with National, said Monday the bank has "nothing to say" at this point about the countersuits or the legal process. National, in court documents, has previously denied any liability in connection with the claims filed by Mr. Dunlop's clients.
Mr. Dunlop said there is potential that more clients will join the group.
"There are other individuals who I also represent who are contemplating that. . . . So it's much more than five."
Mr. Dunlop said some people he's talked with lost a great deal of money in the Knowledge House debacle. Citing client confidentiality, he said he can't name them at this time.
"I've also been in the process of meeting with some of the largest investors who've lost money. There's substantial prospects that they will join in the group.
"If they come on board, through the pleadings, they'll be identified."
Mr. Dunlop said he'll undoubtedly hire securities experts as the case evolves and that he has many boxes of Knowledge House documents in his office.
He wouldn't disclose their contents, citing client confidentiality.
National is also Mr. Potter for alleged margin account shortfalls. He, too, has denied any wrongdoing in the case.
Some of National's lawsuits were also levelled against numbered companies. |
