How Bridging Finance fooled Bay Street – and hundreds of millions of dollars disappeared

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After more than a decade as a financial consultant and money manager, Alejandro Cardot had a knack for spotting the flaws in investment pitches. So when a relative e-mailed in 2019 asking whether it was worth joining the hordes of Canadians flocking to private debt funds, he went into deep-dive mode.

Mr. Cardot had little experience in private debt, especially here in Canada – he’s originally from Venezuela but lives in Montreal, where he earned an MBA at McGill. Over the years, however, he’d developed finely tuned radar for salesmen who overpromise and underdeliver. And when he came across David Sharpe, the chief executive of Bridging Finance Inc., his radar started to ping.

When touting his company, Mr. Sharpe suggested in a television interview that Bridging had found a sweet spot in debt markets: lending to mid-sized Canadian companies that had been ignored by the big banks. It was a strategy he claimed had allowed Bridging to generate annual returns of 8 per cent, with not a single down month or a loss on any of its loans.

But Bridging dealt with some of the least stable borrowers out there, Mr. Cardot thought to himself. How could this possibly be true?

What is Bridging Finance and who are its leaders?

Bridging Finance failed to account for bad loans, potentially boosting its management fees: Receiver

Mr. Cardot began digging. While Bridging disclosed very little about its loan book, some of its borrowers were publicly traded or in bankruptcy proceedings, and therefore obligated to disclose their relationships with lenders. The deeper he combed through U.S. court records and piles of regulatory filings, the more implausible Mr. Sharpe’s statements became.

Mr. Cardot believed this warranted some kind of regulatory intervention. He became intrigued by the possibility of receiving a reward through the Ontario Securities Commission’s whistle-blower program, and filed an official written complaint about Bridging and several other private debt funds. This was unfamiliar territory for him. “In Venezuela,” he says, “if you do whistle-blowing, bad things will happen for sure.”

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He had no way of knowing that by the time he filed his complaint on Feb. 12, 2021, alleging “Bridging Finance’s returns are not real,” the OSC had already been on Bridging’s tail for a full year. Privately, investigators had been asking to see its loan documents since February, 2020, and had even gone so far as to interview top Bridging officials.

It would be another three months before the OSC’s investigation became public knowledge. But on April 30, the regulator asked an Ontario judge for permission to put Bridging under the control of a receiver, and the next morning – a Saturday – it was announced to the world. In an instant, Mr. Sharpe’s professional world collapsed. So did his personal life: His wife, Natasha, was one of the company’s owners and had been its chief investment officer. As for Bridging’s 26,000 investors – the vast majority of them retail buyers – their portfolios were upended and their investments frozen indefinitely.

The allegations that have come to light since, both in court filings and through The Globe and Mail’s reporting, have been harrowing. Hundreds of millions of dollars worth of Bridging’s struggling loans were allegedly never revalued, boosting the Sharpes’ management fees. Nearly half of Bridging’s loan portfolio didn’t pay cash interest and instead deferred the payments – something financiers refer to as a game of “extend and pretend.” The OSC and the receiver, PricewaterhouseCoopers, have also alleged the problems ran deeper than playing fast and loose with valuations. About $19.5-million in Bridging funds ended up in Mr. Sharpe’s personal bank account. Part of that money was then transferred to Liechtenstein, a known tax haven. Another $1.9-million appears to have been used for home renovations, and $228,000 was used for payments to Tesla Motors, and for leases on a 2013 Bentley GT Mulliner and a 2018 Bentley Bentayga.

The scandal has rocked Bay Street. Bridging once seemed unstoppable, and its track record was catnip for aging retail investors desperate for sizable but stable yield in a world of stubbornly low interest rates. Bridging had also partnered with one of Bay Street’s best-known money managers, Sprott Asset Management, which put Bridging’s funds in front of some of Canada’s top investment advisers and helped make them available for sale by every major bank and independent brokerage. By the time of its receivership, Bridging had amassed $2-billion in assets under management. The Sharpes looked like the masters of risk.

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A Globe investigation has found that was mostly a mirage. Despite Mr. Sharpe’s background in compliance and securities law, the hard-partying CEO consistently blurred the lines between his friends and Bridging borrowers, and repeatedly signed off on huge loans to arguably unworthy debtors. Natasha Sharpe, meanwhile, could be wildly optimistic about Bridging’s chances of recovering money from weak borrowers, despite her reputation as a risk expert and an intimidating negotiator. And the OSC has alleged some investor funds flowed into her bank account, as well.

The Sharpes were both sent an extensive list of questions about the evolution of Bridging Finance and The Globe’s reporting. Ms. Sharpe declined to comment for this story. In a statement, Mr. Sharpe’s lawyer said he “is not going to argue the issues related to the receivership of Bridging Finance in the media. Mr. Sharpe disagrees with the OSC’s allegations and will address Bridging Finance issues, where appropriate, through proper legal channels.”

PwC is currently trying to salvage what it can from the troubled loan portfolio and sell the company, but that’s a challenge because the receiver has already discovered Bridging’s largest loan is likely worth a fraction of its book value. As it stands, investors are expected to lose between $800-million and $1-billion, according to people familiar with the sale process.

While the OSC has yet to bring a case against any individuals, the affair has already had an impact – and exposed a major loophole in asset management. So-called alternative investments – private debt, real estate, infrastructure and the like – have seen their popularity soar as retail investors scour for decent yields. But because these assets are privately managed, they face much less external scrutiny, meaning investors must put their faith directly in the fund managers. Bridging’s collapse has exposed just how fraught that relationship can be.

It has become clear the Sharpes weren’t masters of risk at all; they were masters of marketing themselves. Self-promoters are everywhere, of course. The big question here is why no one on Bay Street saw through the Sharpes – or if they did, why they weren’t willing to call David and Natasha out.

Bridging’s early reputation was built on Natasha Sharpe’s pedigree. Raised in Kingston, she earned four university degrees, including a PhD in epidemiology, before taking a job at Coopers & Lybrand (now part of PwC) in 1999. Two years later, she moved to Bank of Montreal’s risk management division and then into corporate finance, underwriting loans for mid-market commercial clients.

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During her time at BMO, Ms. Sharpe won the backing of some influential internal figures and was tagged as a high-potential employee, putting her on track to become a senior executive. But in 2010, Sun Life Financial wooed her away to fill the newly created role of chief credit risk officer. A year later, she was named to Canada’s Top 40 Under 40.

Despite being pursued by the insurer, her time at Sun Life was short-lived, and she left in 2012. Not long after, Ms. Sharpe started Bridging Finance with financial backing from Jenny Coco, whose family-owned company, Coco Group, is best known for its road paving business. The two women met in January, 2009, when BMO underwrote Coco Paving’s acquisition of the Ontario and Quebec road-paving assets of Lafarge SA, and quickly developed a tight bond. In 2011, Ms. Sharpe joined Coco Group’s board of directors – a post she relished because it was “the only paving company of any size in the world run by a woman,” she told The Globe at the time. The following year, Ms. Coco and her brother, Rock-Anthony, became majority shareholders in Bridging, with Ms. Sharpe holding the remaining minority stake. Ms. Coco is also godmother to the Sharpes’ son.

Ms. Coco was sent an extensive list of questions about her relationship with the Sharpes and her ties to Bridging. She declined to comment.

A year after Bridging was created, David Sharpe joined as chief operating officer. A graduate of Queen’s Law with an MBA, Mr. Sharpe had held several posts as corporate secretary or chief compliance officer at firms including Mackenzie Financial Corp., Citigroup and CI Financial. He had also spent four years at the Mutual Fund Dealers’ Association, where he was director of investigations.

The Sharpes believed they’d found a gap in the lending market: mid-sized Canadian companies starved for credit in the aftermath of the 2008 global financial crisis. Early on, Bridging focused on a specific type of lending known as factoring – small, short-term loans that weren’t overly complex. One of Bridging’s early borrowers, for instance, sold 2x4s to Lowe’s. Many retailers don’t pay their receivables for a few months, which can leave suppliers strapped for cash. To alleviate the crunch, Bridging would buy the receivable at a discount and pay the 2x4 supplier up front, then wait to collect the full cheque from Lowe’s.

Bridging’s other business line was known as asset-based lending, focusing on high-cost, short-term loans to less established companies. To help manage the inherent risk, Bridging often charged annual interest rates around 12 per cent, and the Sharpes told investors they didn’t like to extend credit for long periods. In fact, the company’s name refers to bridge loans, which are often paid back in a year or less.

The Sharpes also claimed they had bulletproofed their loan portfolio by ensuring they’d be repaid first if something went wrong. Bridging demanded personal guarantees from its borrowers, too, something the Sharpes referred to as “boot collateral” – assets that could fit in the boot of a car. If a loan went bad, Ms. Sharpe was known to be tough – if not a little ruthless – when collecting that collateral, instructing underlings to “throw it in the boot.”

From the outside, Bridging looked enticing: Natasha was a credit risk specialist with a history at some of Canada’s largest financial institutions. She also stood her ground in an industry rife with chummy men. David, meanwhile, was a smooth talker with a long history as a rule enforcer. Yet money management is built on personal relationships, and the Sharpes still needed some assistance opening doors.

In 2014, help arrived in the form of Sprott Asset Management. The two firms teamed up to launch the Sprott Bridging Income Fund, with Sprott focused on marketing and the Sharpes focused on risk management and investing.

The partnership was formed right as the business of managing money was rapidly evolving. Because interest rates were stuck at obscenely low levels, and because an increasing number of investors were starting to choose low-cost exchange traded funds over mutual funds, money managers began offering alternative investment funds that specialized in private credit, real estate and infrastructure. While these options were more expensive for investors – Bridging’s cost about two per cent annually, plus an incentive fee if the annual return beat a certain threshold – the expectation was that they’d deliver outsized returns.

Amid this shift, the Sprott Bridging Income Fund had a first-mover advantage. It also had a unique feature that did wonders for sales. Specialized funds typically locked in investor money for a specified time frame – sometimes five years or more. Investors in the Sprott Bridging fund, meanwhile, could sell on a monthly basis. That was extremely appealing to older, higher-net-worth retail investors, who, by virtue of their wealth, are considered “accredited” investors authorized to put money into riskier products – even if they aren’t always savvy enough to know exactly what they’re getting into.

As the partnership deepened, a couple of notable developments put Bridging on a new path. For one, Kevin Westfall, who’d run Bridging’s factoring business, left in 2015, nudging the company toward higher-risk lending. (Mr. Westfall did not return multiple requests for comment.) Then, late in 2016, the Sharpes shuffled their roles, with David taking over as CEO so Natasha could focus on her chief investment officer duties. The move created a puzzling chain of command: Natasha now reported to David, even though she was a co-owner of the company and he wasn’t.

Faint cracks also began to show inside the firm and widened over time, according to former employees. In essence, there was Team David, which specialized in sales, and Team Natasha, which focused on risk. Members from both squads sat on the eight-person credit committee – as did Jenny Coco, the majority owner – and each person had one vote.

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At the same time, David began to replace Natasha as Bridging’s public face – and to become a public figure writ large. In 2018, around the time Bridging hit $1-billion in assets under management, he was elected to the Queen’s University board of trustees, helping pave his way into Bay Street’s upper echelons.

All this coincided with an increased focus on Canada’s troubling treatment of Indigenous peoples. As a member of the Mohawks of the Bay of Quinte, Mr. Sharpe began to talk about his Indigenous roots and positioned Bridging to help fund wealth creation for First Nations. In the spring of 2019, the company launched a new fund dedicated to financing Indigenous economic development. A month later, David made a $250,000 personal donation to Queen’s to fund the Indigenous Knowledge Initiative. When the gift was announced, Jim Leech – former head of the Ontario Teachers’ Pension Plan and the university’s then-chancellor – tweeted: “You are a great Canadian, David - proud to be a friend.”

Talking about his Indigenous identity was a major departure for Mr. Sharpe. Few knew that he’d grown up in subsidized housing in Brampton, Ont., where he leaned hard into hockey culture. As a goalie, he earned a full athletic scholarship to play for the Ferris State University Bulldogs in Michigan, but played just 12 games before quitting school and returning to Canada. He also appeared in the 1986 cult-classic hockey movie Youngblood, starring Rob Lowe and Patrick Swayze, which was shot in Toronto. When marketing Bridging funds, he also loved to tell people he’d been invited to try out for the New York Rangers.

In recent years, Mr. Sharpe has said he avoided talking about his Indigenous background for so long because he was ashamed. He has publicly described his childhood home as a “battlefield” where he learned to defend himself with his fists. In a 2018 speech to the Children’s Aid Foundation, he spoke candidly about learning to “live in two worlds.”

That notion would become a recurring theme as Bridging’s popularity exploded – not just for David, but for Natasha, too. The stories the Sharpes told about their prudent, no-BS approach to lending proved to be at odds with the true state of Bridging’s portfolio.

Around 2015, David Sharpe became enamoured by an obscure businessman named Sean McCoshen. Based in Winnipeg, Mr. McCoshen had a record of business failures and a vague, unverifiable résumé. Yet he’d remade himself as an adviser to First Nations communities and earned millions brokering loans for them. Much like with Jenny Coco, the professional relationship blurred into a personal one, with the Sharpes vacationing with Mr. McCoshen and his son.

As the two men grew closer, Mr. McCoshen’s dream of building a railroad from Fort McMurray to the ports of Alaska became a central part of Bridging’s loan portfolio. David publicly supported the project, claiming it would spur economic development for Indigenous communities along its route. But no one really knew the depths of the financial entanglement between Bridging and the railway until this summer, when the receiver revealed that Mr. McCoshen’s company, known as A2A, owed Bridging $208-million, making it the largest loan in the lender’s portfolio. Bridging also had an equity stake in A2A it valued at $109-million. Meanwhile, the railway had just $1-million in cash and few hard assets.

Even more startling, the OSC alleges that a company controlled by Mr. McCoshen transferred a total of $19.5-million to Mr. Sharpe’s personal chequing account between 2016 and 2019 – often shortly after Bridging had advanced loans to Mr. McCoshen’s projects. According to the receiver, $25.5-million in Bridging funds were also sent directly to Mr. McCoshen’s personal bank account. Through his lawyer, Mr. McCoshen declined to comment for this story.

Even if these payments can ultimately be explained, the A2A loan doesn’t align with the principles Bridging used to swear by. While Bridging did require Mr. McCoshen to personally guarantee the loan, much of his wealth was tied to the rail project, creating a circular backstop. In financial statements filed in court, Mr. McCoshen’s largest asset was his $4-billion equity stake in A2A, a value ascribed by consulting firm McKinsey & Co. in the fall of 2020. Yet A2A filed for creditor protection this summer, and without this asset, Mr. McCoshen’s net worth was pegged at negative $96-million.

Mr. McCoshen is also closely tied to another of Bridging’s largest loans, to Bondfield Construction Co. Ltd., which was one of Ontario’s largest builders of public infrastructure until it collapsed in 2019. The OSC’s investigation revealed Bridging quietly assigned the loan to Mr. McCoshen at no cost, which means another loan is ultimately backstopped by the troubled rail project. As well, Bridging lent one of Mr. McCoshen’s numbered companies $9-million to procure a 2002 Bombardier Challenger jet. In all, Mr. McCoshen has ties to more than $500-million worth of Bridging’s loans, about one-quarter of its assets under management.

Beyond Mr. McCoshen, The Globe has discovered a web of connections between Bridging borrowers, advisers and Sharpe family friends, potentially creating conflicts of interest. Adrian Montgomery, the CEO of Bridging borrower Enthusiast Gaming, served as trustee of the trust that holds many of the Sharpes’ assets, including their home in Toronto’s tony Rosedale neighbourhood. He was also appointed as chair and interim CEO of cannabis producer MJardin Group Inc., a major Bridging borrower, after it ran into financial difficulties in 2019. Mr. Montgomery declined to comment for this story.

Investment bank Canaccord Genuity Corp., meanwhile, brokered a 2019 loan between Bridging and Enthusiast, and has also been the gaming company’s lead financial adviser and an adviser to MJardin. In September 2018, Stuart Raftus, who runs Canaccord’s Canadian wealth management division, took a $3.75-million personal loan from Bridging, according to court filings and documents obtained by The Globe. A spokesperson from Canaccord told The Globe the loan was repaid “well before the receivership.”

There was also a discrepancy between Mr. Sharpe’s professional image and his after-work behaviour. Around retail clients and in media interviews, Mr. Sharpe was measured and cogent, the picture of a conservative lender. After work, however, he was known to drink heavily and turn belligerent, even with employees. One said they learned not to answer his calls or texts after 8 p.m. because he could be volatile. The next morning, however, Mr. Sharpe sometimes didn’t remember his behaviour or simply acted like nothing happened. Mr. Sharpe declined to comment on these allegations.

Bridging’s exposure to troubled loans

Despite assurances from Bridging Finance that the

company adhered to strict lending requirements, some

of its largest loans have struggled and also had scant

collateral for the court-appointed receiver to enforce against.

A sample of some of Bridging’s poorest performing loans

are summarized below.

$144-

million**

$317-million*

Alaska-Alberta Railway

Development Corp. (A2A)

Mjardin Group Inc.

Description: A proposal to

build a railway from North-

ern Alberta to the ports of

Alaska as a means of

transporting oil

Description: A publicly traded

cannabis company with

facilities in Winnipeg, Nevada,

and Brampton and Dunnville

in Ontario

Assets: No hard assets,

except “intangible intellectual

property”

Assets: Production

facilities and several retail

outlets in Nevada, with a

market cap of $2-million

Interest payments: In kind

Interest payments: Unclear

$127-

million**

$130-

million **

Hygea Health Holdings

(now NeighborMD)

Peguis First Nation

Description: A health care

company that owns and

manages doctor’s offices in

the United States

Description: The largest

First Nation in Manitoba,

population 10,000

Assets: Unclear – a lawyer

for Bridging acknowledged

in court filings the company

is "woefully undersecured"

Assets: Unclear, though

consultants estimated the

territory has “downside

collateral” of $50-million

Interest payments: In kind

Interest payments: In kind

*$208-million in debt and $109-million in equity ** A2A value as of June,

2021. Other loan values as of Sept. 2020

greg mcarthur and JOHN SOPINSKI/THE GLOBE AND MAIL,

SOURCE: R.C. Morris & Co., internal presentation, as

well as documents filed in court

=

Bridging’s exposure to troubled loans

Despite assurances from Bridging Finance that the

company adhered to strict lending requirements, some

of its largest loans have struggled and also had scant

collateral for the court-appointed receiver to enforce against.

A sample of some of Bridging’s poorest performing loans

are summarized below.

$144-

million **

$317-million*

Alaska-Alberta Railway

Development Corp. (A2A)

Mjardin Group Inc.

Description: A proposal to

build a railway from North-

ern Alberta to the ports of

Alaska as a means of trans

porting oil

Description: A publicly traded

cannabis company with

facilities in Winnipeg, Nevada,

and Brampton and Dunnville

in Ontario

Assets: No hard assets,

except “intangible intellectual

property”

Assets: Production facili-

ties and several retail

outlets in Nevada, with a

market cap of $2-million

Interest payments: In kind

Interest payments: Unclear

$130-

million**

$127-

million **

Hygea Health Holdings

(now NeighborMD)

Peguis First Nation

Description: A health care

company that owns and

manages doctor’s offices in

the United States

Description: The largest

First Nation in Manitoba,

population 10,000

Assets: Unclear – a lawyer

for Bridging acknowledged

in court filings the company

is "woefully undersecured"

Assets: Unclear, though

consultants estimated the

territory has “downside

collateral” of $50-million

Interest payments: In kind

Interest payments: In kind

*$208-million in debt and $109-million in equity ** A2A value as of June,

2021. Other loan values as of Sept. 2020

greg mcarthur and JOHN SOPINSKI/THE GLOBE AND MAIL,

SOURCE: R.C. Morris & Co., internal presentation, as

well as documents filed in court

Bridging’s exposure to troubled loans

Despite assurances from Bridging Finance that the company adhered to strict lending requirements, some of its

largest loans have struggled and also had scant collateral for the court-appointed receiver to enforce against.

A sample of some of Bridging’s poorest performing loans are summarized below.

$144-

million**

$127-

million**

$130-

million**

$317-million*

Alaska-Alberta Railway

Development Corp. (A2A)

Mjardin Group Inc.

Hygea Health Holdings

(now NeighborMD)

Peguis First Nation

Description: A proposal to

build a railway from North-

ern Alberta to the ports of

Alaska as a means of trans-

porting oil

Description: A publicly traded

cannabis company with

facilities in Winnipeg, Nevada,

and Brampton and Dunnville

in Ontario

Description: A health care

company that owns and

manages doctor’s offices in

the United States

Description: The largest

First Nation in Manitoba,

population 10,000

Assets: No hard assets,

except “intangible intellectual

property”

Assets: Production facili-

ties and several retail

outlets in Nevada, with a

market cap of $2-million

Assets: Unclear – a lawyer

for Bridging acknowledged

in court filings the company

is "woefully undersecured"

Assets: Unclear, though

consultants estimated the

territory has “downside collat-

eral” of $50-million

Interest payments: In kind

Interest payments: Unclear

Interest payments: In kind

Interest payments: In kind

*$208-million in debt and $109-million in equity ** A2A value as of June, 2021. Other loan values as of Sept. 2020

greg mcarthur and JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: R.C. Morris & Co., internal

presentation, as well as documents filed in court

Through it all, the Sharpes maintained their risk-averse façade. “We do the most conservative form of asset-based lending and accounts receivables, also known as factoring,” David said in a BNN interview in 2019. “We’re very binary at Bridging Finance,” he added. If a loan has stopped paying cash interest, “we write it down…We want to be very transparent in that case.” And he stressed that Bridging had never experienced a loan loss.

This messaging helped draw in retail investors, who poured at least $1.5-billion into Bridging funds. They may not have fully understood private credit, even if they were “accredited,” but they could trust a track record. The marketing pitch also helped win over influential investment advisers; by the time the receiver took over, every big Canadian bank had some exposure to Bridging funds. Advisers at Toronto-Dominion Bank were particularly smitten, investing $276-million worth of client assets, the most of any bank or independent brokerage, according to a breakdown obtained by The Globe. “The allegations against Bridging Finance are very serious. As the OSC’s investigation into Bridging Finance is ongoing, we do not feel it is appropriate to comment publicly,” the bank said in an emailed statement.

With investor funds pouring in, Bridging started making serious money on its management and incentive fees. In 2016, the company’s earnings before interest, taxes, depreciation and amortization was $2-million. By 2019, it had jumped to $43-million, according to internal figures obtained by The Globe. To cash in on this growth, Bridging’s owners hired Raymond James to explore a sale.

That’s when Gary Ng appeared.

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Mr. Ng was another obscure Winnipeg-based businessman who’d been making the rounds, publicly referring to himself as an “admiral” who was amassing a “fleet” of independent firms. A year earlier, he’d surprised Bay Street by acquiring Vancouver-based money manager PI Financial Corp. for $100-million, and over dinner at Sotto Sotto in Toronto’s Yorkville neighbourhood, Mr. Ng expressed interest in acquiring Bridging. In August 2019, the Cocos and Natasha Sharpe sold a 50-per-cent stake to him for $50-million.

Early in 2020, however, PI discovered some issues with the collateral Mr. Ng had posted when he purchased the money manager. An investigation revealed Mr. Ng had forged documents and wasn’t worth anywhere near what he’d said he was. This spelled trouble for Bridging, which – unbeknownst to investors– had lent Mr. Ng $100-million from its funds during the same time period he was negotiating the purchase of his 50-per-cent stake.

This wasn’t the first time Bridging had done something along these lines.

A year earlier, Bridging had agreed to end its Income Fund partnership, which meant it had to buy out its co-manager. (By that point, Sprott’s alternative investing arm had gone through a management buyout of its own and was renamed Ninepoint Partners LP.) At the time, the breakup was described as a business decision. The OSC alleges there’s more to the story.

Court filings show that a few weeks before the divorce was announced, Ninepoint spotted a strange transfer: $20-million had been moved out of the Ninepoint Bridging Income Fund and was then repaid from two separate Bridging funds. Ninepoint also noticed that Bridging may have collected a special fee from one of the fund’s borrowers but kept the money for itself instead of sharing it.

In an interview with the OSC this February, Ninepoint co-CEO John Wilson described the alleged transfers as “very unusual movements of capital out of the fund” and added, “We didn’t understand exactly what would have caused that to happen.” Even though all the money came back, Ninepoint couldn’t get “satisfactory answers” from Bridging.

When asked about the transfers, both David and Natasha Sharpe, along with a few other Bridging employees, gave the OSC a wholly different explanation, telling the watchdog Ninepoint was facing financial difficulties and wanted to be bought out so it could make loan repayments.

Emails filed in court appear to support Ninepoint’s version of events. In May, 2018, Ninepoint sent Bridging a formal letter outlining its concerns about the transfer of funds. Mr. Wilson also met with David Sharpe and Bridging’s chief compliance officer, Andrew Mushore, to discuss the matter. In an email to colleagues and Ninepoint’s legal counsel afterward, he wrote: “Andrew (and to a limited extent, Dave) attempted to explain away the $20M transfer out of our fund - I won’t go into the details, let’s just say it was a fairly poor and transparent attempt to cover up what they had done.”

Bridging ultimately bought out Ninepoint’s stake in the management contract for $45-million, and the way this payment was sourced is now under scrutiny. Much like the loan Gary Ng used to buy his Bridging stake, the OSC alleges the buyout was misappropriated because it was paid for with investor funds and disguised to look like the money came from elsewhere.

Whether it will ever be returned to investors could depend on the OSC’s ongoing investigation. The Ng loan, however, was partially repaid by the Cocos and Natasha Sharpe as part of a deal to buy back his $50-million stake in Bridging for $5 in March, 2020.

Bridging’s woes have only snowballed since then, however.

Two weeks after buying out Mr. Ng, Canada entered its first COVID-19 lockdown. As markets tanked, panicked investors filed redemption requests amounting to 10 per cent of Bridging’s assets under management. With the economy in free-fall, the lender couldn’t sell its illiquid loans fast enough, and it was forced to gate its funds and lock investors in.

Bridging Finance’s asset growth over five years

Assets under management, in millions of dollars

$2,029

$1,836

$1,164

$664

$398

2016

2017

2018

2019

2020E

Bridging Finance’s financial performance over five years

Revenue vs. EBITDA, in millions of dollars

$64.2

$56.4

$48.7

EBITDA

Revenue

$42.8

$31.7

$20.6

$15.1

$10.5

$7.3

$2

2016

2017

2018

2019

2020E

domenic macri and JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: R.C. Morris & Co. internal presentation

Bridging Finance’s asset growth over five years

Assets under management, in millions of dollars

$2,029

$1,836

$1,164

$664

$398

2016

2017

2018

2019

2020E

Bridging Finance’s financial performance over five years

Revenue vs. EBITDA, in millions of dollars

$64.2

$56.4

$48.7

EBITDA

Revenue

$42.8

$31.7

$20.6

$15.1

$10.5

$7.3

$2

2016

2017

2018

2019

2020E

domenic macri and JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: R.C. Morris & Co. internal presentation

Bridging Finance’s asset growth over five years

Assets under management, in millions of dollars

$2,029

$1,836

$1,164

$664

$398

2016

2017

2018

2019

2020E

Bridging Finance’s financial performance over five years

$64.2

Revenue vs. EBITDA, in millions of dollars

$56.4

$48.7

EBITDA

Revenue

$42.8

$31.7

$20.6

$15.1

$10.5

$7.3

$2

2016

2017

2018

2019

2020E

domenic macri and JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: R.C. Morris & Co. internal presentation

The matter went unresolved for months, but by September 2020, Bridging was able to secure a $126-million cash infusion from institutional investors. Under the terms of the participation note, as the funding was known, the new investors ranked senior to all existing investors, and they were entitled to cash interest payments, regardless of whether the borrowers themselves were paying in cash or deferring their payments.

That same month, the OSC issued a summons for Bridging to produce more loan documents, and compelled David and other officials to appear for interviews with investigators. Around this time, Mr. Sharpe instructed a Bridging employee to contact the company’s IT service provider and delete company e-mails that contained specific search terms, one of which was “Sean McCoshen,” the receiver has alleged. According to court documents, 34,000 records were targeted for destruction.

Mr. Sharpe also started moving around money. Four days after his first sit-down with the OSC, he closed the BMO chequing account that had allegedly received Bridging funds lent to A2A; a month later, in December 2020, $4.7-million of this money was moved offshore to a trust firm Liechtenstein, according to the receiver.

There was a significant shuffle inside Bridging, too. In January of this year, members of Mr. Sharpe’s circle were promoted to senior roles, including Robb Cacovic to co-CIO, alongside Natasha.

Then everything came came crashing to a halt at the end of April, when the court stripped control of Bridging away from the Sharpes.

With Bridging up for sale and major losses expected, the easy target for investor rage is the Sharpes themselves. David and Natasha allegedly exploited the secrecy afforded to private debt managers and misled people about the true state of Bridging’s finances. One glaring instance may be the emergency cash infusion Bridging obtained to fund its redemptions. The loan cost around 13 per cent annually and ranked the new institutional backers ahead of all existing fund investors. Instead of giving long-standing clients full disclosure of the deal, they say they leaned on legal advice that determined they didn’t need to say much about it.

Other times, David Sharpe contorted facts until they were unrecognizable. In 2019, during a BNN interview, Mr. Sharpe was asked about the troubled Bondfield loan and replied by saying it had been sold to a family in Western Canada. In reality, the loan was assigned to his good friend Mr. McCoshen, at no cost.

Yet Bridging also didn’t operate in a vacuum. There were multiple parties who either took the Sharpes at their word or failed to ask questions at all.

KPMG LLP is central to this line of inquiry. As the auditor of Bridging’s investment funds for the past two years, it’s one of the few external parties who had access to detailed loan information. In its 2020 audit, KPMG earmarked $31-million in expected loan losses for the Bridging Income Fund and $12-million for the Mid-Market Fund. (Combined, the two funds have $1.5-billion in assets under management.) The A2A loan and equity position, meanwhile, could see Bridging lose hundreds of millions of dollars

It’s possible KPMG relied on documents that supported the Sharpes’ credit analysis, such as McKinsey’s $4-billion valuation for the A2A railway. Even then, it would be hard to justify keeping every loan but one at its original value.

When Bridging went hunting for emergency funding last year, it gave institutional investors a rare look at its books. One of them, R.C. Morris & Co. (RCM), grouped the loans in Bridging’s two largest funds into three tranches: A, B and C. RCM described C loans as “bad,” with Bridging “unlikely to collect” on the principal, according to a presentation obtained by the Globe.

By RCM’s measure, just 21 per cent of Bridging’s loans warranted an A rating; 44 per cent were given a C. Most of those loans also had deferred interest payments or a “payment in kind” – IOUs that would be collected when the full loan was eventually repaid.

In response to questions from The Globe, KPMG said it “takes its role, responsibilities, and obligations as an auditor very seriously on every engagement. Our obligations under our Code of Professional Conduct prohibit us from discussing client confidential matters.”

Ninepoint, meanwhile, also allegedly got a glimpse of some questionable behaviour when it was bought out of the co-management contract in 2018. There’s nothing to suggest Ninepoint was aware of the full extent of Bridging’s behaviour. But rather than tell its clients – or perhaps even a watchdog – about what it had uncovered, it accepted the buyout without disclosing the backstory to those it helped bring into Bridging’s flagship fund.

“Ninepoint has always acted with the highest standards of diligence, integrity and transparency,” co-CEO John Wilson wrote in a statement to the Globe. “We fully cooperated with the OSC’s investigation of Bridging Finance. We never had knowledge of the allegations made by the OSC against Bridging Finance. We are very pleased that the OSC is taking a strong position in this case.”

Mr. Wilson also noted that its disagreement with Bridging Finance “was commercial in nature and related to fees.”

Then there are the assorted investors, advisers and brokerage compliance departments who played a role in the debacle. With debt investments, fat returns are synonymous with higher risk, and at eight per cent annually, Bridging’s were rather juicy.

The notion that such great returns could come with minimal risk is what initially sparked Mr. Cardot’s curiosity around private debt and sent him searching for answers in the far corners of the internet.

It might have been too much to ask individual investors to do the same. But all the signs pointed to the fact that Bridging was too good to be true – especially for anyone who was supposed to know better. For all the blame the Sharpes deserve, Bay Street also let itself get fooled.

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