David Sharpe of Bridging Finance in Toronto on Feb. 9, 2017.JENNIFER ROBERTS/The Globe and Mail
Under investigation by Canada’s top securities watchdog and removed from his $2-billion fund manager, Bridging Finance Inc. chief executive officer David Sharpe admits his company needs to beef up its investor disclosures, but says he is mystified by the move to put his company under the control of a receiver.
In his first interview since the Ontario Securities Commission put Bridging under the control of PricewaterhouseCoopers LLP, Mr. Sharpe acknowledged there is “room for improvement” on disclosure to Bridging’s investors, particularly around perceived conflicts of interest that may benefit its executives or owners.
Yet he said he does not understand why such a heavy hand was necessary. “The need to put in a receiver is perplexing,” he said. “We are stunned by this.”
Bridging receivership highlights the risks in private-debt investing
Mr. Sharpe said he found out Bridging was being put into receivership last Friday around 10:30 p.m., the day after he was interviewed at length by an OSC forensic accountant and an OSC lawyer about a complex web of payments and loans between Bridging, some major borrowers, and himself. The interview was his second extensive examination with the OSC in six months.
Bridging, which specializes in private debt and manages roughly $2-billion in assets, has exploded in growth since it was founded in 2012. The company, along with other private-credit lenders, has attracted many high-net-worth investors who are hunting for yield in an era of low interest rates.
Mr. Sharpe is adamant that no investor money has gone missing, yet the OSC says its probe has uncovered “serious misconduct” in connection with Bridging loans to three different borrowers, each worth more than $100-million. In two cases, the OSC has alleged money flowed directly to Mr. Sharpe and his wife, Natasha, who co-owns Bridging with road paving magnate Jenny Coco, after investors’ funds were advanced.
In particular, investigators have zeroed in on what they describe in court documents as “undisclosed payments” totalling $19.5-million that Mr. Sharpe received into his personal chequing account from a company controlled by one of Bridging’s biggest clients, businessman Sean McCoshen.
Mr. Sharpe told the OSC those payments, which the OSC alleges were deposited within days of extending more investor funds to Mr. McCoshen’s companies, were loans. When pressed by the regulator to come up with the loan agreement, Mr. Sharpe could not produce one.
Asked about these payments Wednesday, Mr. Sharpe repeated that they were loans and that there is a formal agreement governing them. “These payments over a number of years were loans to me,” he said, adding, “there’s a loan agreement in place, absolutely.”
When The Globe and Mail asked Mr. Sharpe to produce the agreement Wednesday – six days after he was originally asked for it by the OSC – he said he did not have a copy. Mr. McCoshen, the counterparty in the alleged agreement, has not responded to multiple requests for comment.
When asked what the alleged loans were for, Mr. Sharpe said Mr. McCoshen was simply a funding source for his personal investments. “Some people go to a bank, some people go to private corporations and individuals,” he said.
Mr. Sharpe’s relationship with Mr. McCoshen, who is a Winnipeg-based businessman with connections to Indigenous communities, is closely tied to Alaska-Alberta Railway Development Corp. AARDC is trying to build a railway line connecting northern Alberta and the ports of Alaska. Founded by Mr. McCoshen, AARDC is Bridging’s biggest borrower, with debts exceeding $180-million.
Mr. Sharpe said he is particularly frustrated with the receivership’s effect on the proposed railway line. The OSC has questioned loans tied to the project, and has also noted that its alleged $4-billion value is a theoretical one, driven by a recent valuation report from McKinsey & Co.
A major goal of the railway project, Mr. Sharpe said, is to sell a large ownership stake in it to Indigenous communities. Mr. Sharpe is a status Indian and a member of the Mohawks of the Bay of Quinte who grew up on and off reserve.
“To attack that loan, to put that loan into question, is really an injustice,” he said of the regulator’s allegations.
He has similar feelings about many of the allegations the OSC has made, arguing that the regulator’s move to install a receiver is “not taking into account investors, borrowers or advisers.”
In his interview with The Globe, Mr. Sharpe also addressed, for the first time publicly, Bridging’s brief and tumultuous involvement with Gary Ng, the former owner of Vancouver-based PI Financial.
Mr. Ng left PI in 2020 after another regulator, the Investment Industry Regulatory Organization of Canada, began probing allegations that Mr. Ng falsified documents to make it appear that his investment accounts held much more money than they actually did. These accounts were used as collateral to finance his acquisition of PI.
The OSC has alleged that in 2019, Bridging advanced $32-million in investors’ funds to Mr. Ng just two weeks before Mr. Ng purchased a 50-per-cent stake in Bridging for $50-million.
Speaking about the company’s ties to Mr. Ng, Mr. Sharpe said, “We were embarrassed by that.” Bridging’s shareholders – his wife, Natasha, as well as Ms. Coco and Ms. Coco’s brother – repaid the amount Mr. Ng borrowed to purchase his stake in Bridging, he said.
Asked whether many of these issues could have been cleared up if Bridging had made more candid disclosure to investors, Mr. Sharpe said that the nature of private-debt lending places restrictions on what can be said about its borrowers. “Well, number one, it’s not mandated. There’s a reason private debt is private,” he said, adding that the company makes the necessary disclosures about its portfolio.
Although he is now watching from the sidelines, he said that Bridging remains a viable company and a strong business, and hopes that it will make moves to extract itself from the oversight of the receiver.
“I fear that the proceedings are out of control and I sure hope the company’s going to be in court trying to remove the receiver as soon as possible,” he said.
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