David and Natasha Sharpe, of Bridging Finance Inc.Fred Lum/The Globe and Mail
Bridging Finance Inc.’s court-appointed receiver is preparing to take legal action against KPMG LLP, the accounting giant that once audited the private lender’s investment funds, but has since stepped down from the role.
In an Oct. 27 letter to Bridging unitholders, receiver PricewaterhouseCoopers LLP said it recently advised KPMG it was “analyzing and assessing claims … against various parties, including KPMG.”
PwC also said it previously told KPMG it had “concerns regarding the financial statements” the accounting firm had audited. KPMG resigned as auditor of Bridging’s funds effective Oct. 13.
KPMG declined to comment for this story, citing professional regulations that prohibit it from commenting on confidential client matters.
The proposed lawsuit is one of several steps PwC is taking to recoup money for Bridging unitholders, who have been waiting to learn how much of their investments are recoverable.
Trust tied to Bridging Finance allegedly moved money offshore
Bridging Finance failed to account for bad loans, potentially boosting its management fees: Receiver
In late April, an Ontario Superior Court judge placed Bridging under the control of PwC at the request of the Ontario Securities Commission. The OSC has alleged Bridging engaged in “serious misconduct” in connection with several loans, including allegations that companies controlled by Bridging’s biggest borrower, Winnipeg businessman Sean McCoshen, had transferred $19.5-million into the personal chequing account of David Sharpe, Bridging’s then chief executive officer.
Mr. Sharpe was fired from Bridging by the receiver in May, as was his wife, Natasha Sharpe, who was the fund’s chief investment officer.
Bridging was founded in 2012 and, in its early days, focused on providing alternative lending, known as bridge loans, to middle-market companies considered too risky for traditional bank financing. The firm quickly grew its assets under management, and by the time the receiver took control, Bridging oversaw $2-billion on behalf of 26,000 investors.
The receiver’s latest update to unitholders is not the first time that PwC has suggested there were deficiencies in the fund’s audited financial statements. In a previous report to the court, PwC stated that numerous Bridging loans had struggled to perform, yet only one loan over the past four years had its internal value reduced to reflect those problems.
In some cases, Bridging’s borrowers had even entered insolvency proceedings, court documents show, but the loan values were not changed.
As a result, the net asset values, or NAVs, of Bridging’s investment funds weren’t lowered. One of the consequences of this is that Bridging may have collected fees from its investors that weren’t reflective of how the funds were performing.
From the start of 2017 to the end of 2020, Bridging earned more than $150-million in the form of management fees and variable performance fees that were calculated according to the NAVs.
The Oct. 27 letter to unitholders also sheds light on the receiver’s efforts to find a buyer for Bridging, or at least for some of its loans. After receiving 21 letters of intent in September, PwC settled on a list of 11 eligible bidders who have been given wider access to Bridging’s books and are currently completing due diligence. The deadline for their bids is Nov. 8.
Separately, the receiver has been tracing millions of dollars that were allegedly transferred into Mr. Sharpe’s personal chequing account by Mr. McCoshen’s companies. In August, PwC reported to the court that it had reached an agreement with David and Natasha Sharpe that the proceeds from the sale of their family home in Toronto would be held in a law firm trust account.
However, tracing funds as they passed through relevant accounts is a complicated endeavour. For one, court records show that a family trust created by Bridging’s top executives allegedly funnelled misappropriated money to an asset manager in Liechtenstein, which is a known tax haven.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.