David and Natasha Sharpe of Bridging Finance Inc. in April 2019.Fred Lum/The Globe and Mail
An Ontario judge has placed alternative lender Bridging Finance Inc. under the control of a receiver following allegations that the money manager improperly used investor funds to benefit some of its founders and executives.
The Ontario Securities Commission alleges that Bridging misappropriated $35-million from an investment fund it manages to complete an acquisition for its own benefit; that its chief executive officer, David Sharpe, received $19.5-million into his personal chequing account from a client to whom Bridging had lent more than $100-million; and that Bridging lent $32-million to a borrower two weeks before the same borrower bought a 50-per-cent stake in Bridging.
These transactions constitute “serious misconduct and breaches of Ontario securities law,” the OSC has alleged. Bridging and “certain members of its senior management have failed to deal fairly, honestly and in good faith with the investors” in its funds, the OSC has charged.
What is Bridging Finance and who are its leaders?
Bridging, which specializes in private debt and manages investment funds with roughly $2-billion in assets, is now under the control of PricewaterhouseCoopers LLP, which will manage its affairs while the OSC investigates.
The OSC’s request for receivership was granted by the Ontario Superior Court of Justice on Friday and made public Saturday. With PwC now in charge, Bridging cannot issue or redeem any units of its investment funds, effectively freezing investor money for the time being.
Bridging has not yet had an opportunity to respond to the allegations, which were filed in court in support of the receivership application. The application was made on an ex-parte basis – which means Bridging was not given notice of the application. Mr. Sharpe and other members of Bridging’s senior management team, however, were examined by investigators in the months leading up to the application.
Neither the company, nor Mr. Sharpe, responded to requests for comment from The Globe and Mail.
Before the receivership, Bridging was run by the husband and wife team of Mr. Sharpe and his wife, Natasha. Mr. Sharpe served as CEO, while Ms. Sharpe was the company’s chief investment officer. The money manager was founded in 2012 and got its start providing alternative lending, known as bridge loans, to middle-market companies considered too risky for traditional bank financing.
Bridging was at the forefront of a decade-long trend in which wealthy individuals and institutional investors deployed their capital to private debt funds, which offered better yields than those of government and corporate bonds. As the company’s clout grew, so did the profile of Mr. Sharpe, who has been an outspoken advocate for Canadian Indigenous communities through philanthropy, public speaking and by providing capital to First Nations projects.
The OSC says loans in one of those projects are central to its allegations. Between 2015 and 2020, Bridging lent more than $100-million to Alaska-Alberta Railway Development Corp., or AARDC. The corporation plans to build a 2,570-kilometre rail line from northern Alberta to ports in Alaska.
The principal behind AARDC is Winnipeg-based businessman Sean McCoshen. The OSC alleges that, between 2016 and 2019, a company controlled by Mr. McCoshen made $19.5-million in “undisclosed payments” to the personal chequing account of Mr. Sharpe. More than $17-million of that money was transferred within five days of Bridging advancing loans to entities linked to Mr. McCoshen, the OSC alleges.
Mr. McCoshen did not respond to a request for comment.
In an affidavit, OSC forensic auditor Daniel Tourangeau says that when he examined Mr. Sharpe’s chequing account records, he was “unable to ascertain a legitimate business purpose” for the undisclosed payments. Rather, Mr. Tourangeau alleges, the vast bulk of those payments, $11.7-million, was routed to Mr. Sharpe’s investment accounts. Another $1.9-million appears to have been used for 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, Mr. Tourangeau alleges.
The OSC also alleges that Bridging improperly used investors’ money in 2018 when it bought out another firm, Ninepoint Partners LP, which had been co-managing the Bridging Income Fund with it. Under this arrangement, the two firms split the management fees from the income fund.
Mr. Tourangeau alleges in his affidavit that Bridging used $35-million from its Bridging Mid-Market Debt Fund to purchase Ninepoint’s stake. This was never disclosed to investors, Mr. Tourangeau alleges. Instead, he says, Bridging entered into a questionable transaction with a client that was designed to “give the appearance” that the Ninepoint acquisition had been financed through a loan.
That client, Rishi Gautam, told the OSC that he was asked by the Sharpes to accept a “back to back loan” – an arrangement whereby he would receive a $35-million loan from Bridging, only to turn around and lend that money back. At the time, Mr. Gautam’s cannabis company, MJardin Group, had borrowed more than $80-million from Bridging. Mr. Gautum told investigators that he went along with the arrangement because he “wasn’t really in a position to say no.”
The OSC has also criticized Bridging for its dealings with Gary Ng, the former owner of Vancouver-based money manager PI Financial who bought 50 per cent of Bridging in 2019 for $50-million.
In its request for receivership, the OSC alleges that around $30-million of the $50-million that Mr. Ng used to purchase his stake in Bridging in 2019 came from investor funds that Bridging managed. When Bridging agreed to advance funds to Mr. Ng, it did not properly disclose to investors that Mr. Ng was in negotiations to purchase shares from Bridging’s shareholders, the regulator alleges.
Mr. Tourangeau, the OSC’s forensic auditor, also highlighted two $500,000 payments that Mr. Ng made from a Toronto-Dominion Bank account to the personal chequing accounts of Mr. Sharpe and Ms. Sharpe. The payments took place on Nov. 14, 2019, a few months after Mr. Ng bought his stake in Bridging.
Mr. Tourangeau says he reviewed all the documents about Mr. Ng that Bridging disclosed to the OSC. “I have seen nothing in the documented agreements for those transactions to explain these transfers,” he alleges. In their compelled examinations with the OSC, Mr. Sharpe and Ms. Sharpe denied there were any other transactions involving Mr. Ng, he alleges.
Mr. Ng is no longer a co-owner of Bridging. In 2020, the Investment Industry Regulatory Organization of Canada alleges that he forged documents to make it look like his trading accounts held far more than they actually did, and also alleged those forged statements were offered up as collateral to lenders that backed his investment in a money manager, which The Globe later identified as Bridging.
Mr. Ng did not respond to requests for comment.
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