David and Natasha Sharpe, of Bridging Finance Inc., in the company's downtown Toronto offices, on April 11, 2019.Fred Lum/The Globe and Mail
The court-appointed receiver in control of Bridging Finance Inc. alleges that the lender’s former chief executive officer asked an employee to delete thousands of e-mails amid queries from Ontario’s securities regulator, and has called for the repayment of the largest loan on its books, citing concerning irregularities.
In its most recent report to the court, the receiver, PricewaterhouseCoopers LLP, says a Bridging employee has disclosed that David Sharpe instructed the employee to attend Bridging’s office on multiple occasions in 2020 and perform “searches for e-mails to be deleted.”
The receiver also alleges that on Oct. 6, 2020, that same Bridging employee asked the company’s IT service provider to delete e-mails that contained certain search terms – and the result was the destruction of approximately 34,000 records, court documents state. Two weeks before that deletion request, on Sept. 23, the Ontario Securities Commission had issued a summons for Bridging to produce documents and for Mr. Sharpe to appear for a compelled interview with investigators.
In a letter to Bridging investors, PwC described these deletions as appearing to be “intentional and targeted.”
“Our forensics team is working to recover these deleted e-mails, if and wherever possible, and we expect to report further on this once those efforts are complete,” the receiver wrote. The IT service provider allegedly told the receiver that the October deletion request took nearly four months to complete because the process was so laborious.
The letter to investors also says that PwC has identified a number of “issues of concern” with the company’s largest outstanding loan to the Alaska-Alberta Railway Development Corp., or AARDC, which had been developing a plan to build a railway from Alberta’s oil sands to the ports of Alaska. The ambitious project is in its infancy, and requires multiple approvals from government and many First Nations communities before any construction can begin.
Bridging’s outstanding loans to AARDC total $208-million. Bridging also has an equity stake in the company that it values at $109-million – a stake it received through a convertible debenture.
Citing transactions that “appear to be outside of the normal course of business of Bridging,” PwC has demanded that AARDC repay its loans. In mid-May, the railway developer told PwC that it expects to have $1-million in cash on hand after making some payments. Two days later, AARDC’s legal counsel resigned, as did some of its executives.
PwC identified 10 transfers of Bridging funds to AARDC since 2015, some of which were deposited in a numbered company controlled by Sean McCoshen, who founded the railway company and is its sole shareholder. The receiver noted that it “has been unable to determine the commercial relationship” between the company and AARDC.
PwC also noted that the numbered company is the same one that the OSC alleges transferred $19.5-million to David Sharpe’s personal chequing account between 2016 and 2019.
PwC has also found documents that show a $25.5-million transfer of Bridging funds to AARDC was sent directly to a personal bank account of Sean McCoshen.
The numbered company and the name “Sean McCoshen” were two of the search terms used by the Bridging employee who was ordered to look for e-mails to be deleted, PwC alleges.
In an e-mailed statement, Melissa MacKewn, a lawyer for Mr. Sharpe, said her client believes that the receiver’s comments have impugned the AARDC loan, as well as the railway project – a move that he believes is not in the interest of Bridging’s investors.
“Moreover, the … railway is a critically important infrastructure project to the Indigenous people and Canada more broadly, and, unless handled strategically, this receivership imperils its completion,” Ms. MacKewn said.
She said there are multiple businesses, which she did not identify, that have expressed interest in purchasing the assets of Bridging. “Mr. Sharpe believes that an orderly transition of [Bridging] to a new manager affords the best chance of preserving the value of the loan portfolios.”
Bridging, which manages about $2-billion in investor funds, had been one of Bay Street’s leading private debt companies in recent years as investors sought decent yields in an era of low-interest rates.
But on April 30, at the request of the Ontario Securities Commission, an Ontario judge placed Bridging under the control of PwC after the regulator alleged that Bridging had improperly used investor funds to benefit some of its founders and executives. This included the allegation that Mr. Sharpe received $19.5-million in transfers into his personal chequing account from the numbered company controlled by Mr. McCoshen.
Mr. Sharpe was terminated from his position at Bridging in May by the receiver, as was Mr. Sharpe’s wife, Natasha Sharpe, who is one of Bridging’s owners and had also been the company’s chief investment officer.
PwC said it has attempted to question Mr. McCoshen, but was told that he is unable to respond to questions “at this time due to medical circumstances.”
The receiver is still working on a valuation of Bridging’s complex loan portfolio, and has assembled a group of investors to serve as an advisory group that can offer input and provide feedback on behalf of retail and institutional stakeholders in order to speed up PwC’s work.
Bridging has 25,900 unitholders, the majority of whom are retail buyers, but they also include some institutions, such as the University of Minnesota Foundation. Bridging had $299-million in Canadian cash on hand at the start of June, as well as US$21-million.