This was going to be a story about CBRM council meeting in secret with Albert Barbusci of Sydney Harbour Investment Partners (SHIP) yesterday and then, during the regular meeting last night, approving a three-year extension to Barbusci’s exclusive contract with the municipality. (I’ve removed the SHIP Exclusivity Countdown Clock from the home page. Counting down for three years just seems sad.)
I had actually written that I was ready to give up on this story — to surrender to the persuasive powers of Barbusci, who has convinced yet another CBRM council (with two notable exceptions — Deputy Mayor Earlene MacMullin and District 6 Councilor Glenn Paruch) that he is in the process of bringing a billion-dollar container terminal to Sydney harbor and needs a three-year extension to his exclusivity contract to make up for time lost due to COVID.
I was ready to accept District 7 Councilor Steve Parsons’ reasoning that Barbusci’s services are not costing the CBRM anything and if he can bring a shipper to the table in the next three years, more power to him.
But during the debate, Mayor Amanda McDougall stated that her only real reason for supporting the extension was Membertou’s involvement as an equity partner in Novaporte, which reminded me that the last time I checked the Quebec business registry, where Novaporte LP is registered, Membertou was not listed as a partner.
So I looked it up and discovered that Membertou and Toronto-based Bridging Financing Inc (BFI), both of whom were announced as consortium partners in February 2019, are now listed in the registry:
Then, in a plot twist I am embarrassed to say I missed completely, I discovered that Bridging Finance Inc was placed under the control of a receiver, PricewaterhouseCoopers, on April 30, following allegations by the Ontario Securities Commission (OSC) — none of which have yet been proven in court — that Bridging and CEO David Sharpe “improperly used investor funds to benefit some of its founders and executives.”
Natasha and David Sharpe, 11 April 2019 (Source: Bridging Finance Inc)
That would be the same David Sharpe quoted by the St. John’s Telegram back in February 2019:
“We see tremendous potential in this project and we think it has wide-reaching benefits to Membertou and all 13 Mi’kmaq communities, as well as for the entire province of Nova Scotia,” said David Sharpe, CEO of Bridging Finance and a member of the Mohawks of the Bay Quinte, in a press release. “We look forward to our partnership with SHIP.”
Sharpe founded Bridging, which has $2 billion in assets under management, in 2012 with his wife, Natasha, who served as chief investment officer. According to the Globe, the firm:
…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.
There’s lots in the business press about this “scandal” (hence my embarrassment at missing it) — you can start with this article from the Globe and Mail, then move on to BNN Bloomberg’s coverage as well as that of the Financial Post — but I will try to break down the OSC’s main allegations for you.
“Back-to-Back”
First, the regulator alleges that Bridging “misappropriated” $35 million from an investment fund it manages to “complete an acquisition for its own benefit.” BNN Bloomberg fleshes this out, explaining it was a deal involving MJardin, a Canadian cannabis company:
MJardin frequently turned to Bridging Finance since 2017 when it needed funds to acquire two small cannabis companies as well as to build a new cultivation facility in Manitoba. The company initially borrowed about $30 million; its debt to Bridging Finance eventually ballooned to $155.8 million as it attempted to better compete in Canada’s burgeoning legal cannabis market.
According to OSC staff allegations that have not been proven, former Bridging Finance Chief Executive Officer David Sharpe and his wife Natasha, who was chief investment officer at the firm, asked MJardin’s then-CEO, Rishi Gautam, to accept a $35-million loan secured against the pot producer’s assets. Those funds were then allegedly lent back to Bridging Finance to buy out Ninepoint Partners, a Bay Street firm that was looking to end its ties with the lender in Oct. 2018. An OSC official has alleged the so-called “back-to-back arrangement” was not properly disclosed and that the $35-million loan was appropriated from Bridging Finance investment funds.
This is a complicated story with a weird little Nova Scotia connection, according to OSC forensic accountant Daniel Tourangeau’s April 29 affidavit:
BFI claimed it obtained $35 million to close the Ninepoint Transaction from a loan (the 891 Loan) from 3319891 Nova Scotia Company (891 Nova Scotia), a holding company owned and controlled by [Rishi] Gautam. At the time, Gautam was the CEO of Loan Counterparties (collectively, the Mjardin Group) with over $100 million in outstanding loans from the BFI Funds.
Gautam, who left MJardin in 2019, told Tourangeau that 3319891 Nova Scotia is “a holding company setup for tax planning and has no physical presence, operations or bank accounts.”
MJardin has since retained a restructuring firm to “review a potential sale” of its assets.
Bentleys
Bentley Bentayga
Second, the regulator alleges that David Sharpe received “approximately $19.5 million in undisclosed payments into his personal chequing account from a company owned and controlled by an individual during the same period that BFI loaned over $100 million to other companies connected to the same individual.”
Tourangeau identified the “individual” as entrepreneur Sean McCoshen, founder and chairman of the Alaska-Alberta Railway Development Corporation (A2A Rail).
According to an affidavit sworn by OSC forensic accountant Daniel Tourangeau, much of the undisclosed money was moved into David Sharpe’s investment accounts at Bank of Montreal and Richardson GMP; at least C$1.4 million “appears to have been later transferred offshore.”
About C$128,000 was paid to a unit of Tesla Inc. and almost C$100,000 to a car-leasing company, which Tourangeau believes was used to lease a 2013 Bentley GTC Mulliner and a 2018 Bentley Bentayaga, the affidavit states. About C$830,000 was used for donations, including to Ontario’s Queen’s University.
OSC investigators spoke to Sharpe on 27 October 2020 about his relationship with McCoshin and, according to Tourangeau, on November 2, Sharpe closed his Bank of Montreal account.
In a June 9 filing, receiver PwC said 34,200 emails have been deleted from the Bridging company server, that it had identified “a number of issues” relating to the company’s relationship with AARDC (which BNN Bloomberg characterized as Bridging’s “top client with $316.6 million exposure as of March 31”), that AARDC’s legal counsel and some of its management team had resigned and that PwC’s legal counsel had been unable to arrange a conversation with McCoshen “due to medical circumstances.”
Ng
Finally, according to court documents, the OSC alleges that:
…during the same period that a different individual was negotiating to purchase half of BFI, BFI loaned companies owned by that individual almost $100 million, including $32 million two weeks before the acquisition closed, and (iv) it appears that BFI did not make complete or timely disclosure of the above to investors in the BFI Funds.
Tourangeau identified this individual as Gary Ng, the former owner of Vancouver-based money manager PI Financial who bought 50% of Bridging in 2019 for $50-million. Ng, according to the Globe and Mail, 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.
RelationSHIP?
PwC immediately fired the Sharpes.
With the receiver in charge, Bridging cannot issue or redeem any units of its investment funds, which means investors’ money is effectively frozen. A group of Bridging “unitholders,” as they’re known, are not happy with this state of affairs and have called upon the OSC and PwC to:
…establish an orderly and transparent sale of Bridging and/or its Funds, given the multiple credible expressions of interest received to date and the need to protect the interests of Bridging’s Unitholders.
The unitholders claim “multiple third parties” have come forward with “credible expressions of interest” which PwC is ignoring because it wants to continue the receivership “to collect fees.” The unitholders (I almost wrote “unitheads”) say:
The Funds were audited by KPMG for the period ended December 31, 2020 and the portfolio was found to be performing well. The Funds have assets under management of approximately $2 Billion and hold an estimated $300 Million cash position. Given the OSC’s mandate of investor protection, we urge the OSC to mandate an orderly Bridging sales process to protect investors.
This is interesting in light of the theory Andrew McCreath of Forge First Asset Management shared with BNN Bloomberg shortly after the Ontario court appointed PwC as Bridging’s receiver. McCreath said that while the media was focused on the alleged misappropriation of funds at Bridging:
What I’d like to speak to you about today…is my view that it is likely that the net asset values of the fund[s], in other words, the prices of the funds, were fudged. Now, again, these are allegations that in this case I’m making but I believe that the allegations submitted by the chief investigator of the OSC are very supportive of my statement…
Watch the video and you’ll see that McCreath makes a pretty convincing case.
A group of 25,000 Bridging unitholders has now hired lawyers who have asked an Ontario court to “allow them to represent those unitholders amid an investigation into the troubled Toronto-based private lender by Canada’s top capital markets regulator.”
Oh, and on June 9, PwC also announced that it’s planning to launch a “rigorous sales and investor solicitation process” in which some or all of Bridging’s loans and assets “could be scooped up,” according to BNN. (The process is subject to court approval.)
Bridging went into receivership on April 30.
Albert Barbusci has had two in camera meetings with CBRM council since that time. Has he mentioned this spot of bother between his partner and the OSC to the CBRM council?
Do they know how much SHIP has borrowed from Bridging Finance Inc and on what terms?
Has Barbusci briefed them on the possible ramifications of a “rigorous” PwC “sales and investor solicitation process” or a sale of Bridging and its funds?
The SHIP Show, which I thought was going to be a snorefest for another three seasons, just got interesting again.
