Bridging Finance Update

I thought it might be time for an update on the Bridging Finance story but in case you’ve forgotten about Bridging, I’ll do a sort-of “previously on” recap.

Bridging Finance, Membertou and SHIP logosBridging Finance is a Toronto-based “alternative lender” providing financing to projects considered too risky by traditional banks. It raises money through the sale of “units” in a suite of funds, thereby allowing retail investors access to the wonderful world — and outsized returns — of private debt.

In April of this year, Bridging was placed under the control of a receiver, PricewaterhouseCoopers (PWC), by an Ontario Superior Court Judge at the request of the Ontario Securities Commission (OSC). Bridging — and its founders, David and Natasha Sharpe — stand accused of “serious misconduct,” details of which I got into here. (I wrote elsewhere about Bridging’s largest debtor, Sean McCoshen’s A2A Rail, but was unable to find any information to update this aspect of the story.)

The local angle, of course, is that Membertou Corporate borrowed $6.8 million from Bridging to invest in Albert Barbusci’s Sydney harbor container terminal project. Membertou and Bridging Inc were announced as partners in Barbusci’s Novaporte “consortium” in January 2020.

That’s the basic story. Here’s what’s been happening since last we tuned in:



In July, David Sharpe applied to have the investigation into Bridging quashed. In September, after an initial hearing, he filed an updated application asking for an order “revoking or varying” the OSC order authorizing the investigation. In both applications he asked that any compelled evidence gathered during the course of the investigation be marked confidential and not made available to the public.

The OSC has applied to have Sharpe’s application quashed and PwC has asked for intervenor status in the hearings on both motions.

I know that hearings regarding these various matters took place on October 4, November 3 and November 9 but I can’t find any reference to a particular outcome, so must assume deliberations are ongoing.



PwC launched a sale and investment solicitation process (SISP) on August 9 and of the 216 parties that initially expressed interest in Bridging and its assets, 93 were designated as Phase 1 Qualified Bidders and given access to what PwC calls “the Data Room.”

The Phase 1 bid deadline was September 13, by which point the receiver had received 13 letters of intent (LOIs). For reasons I do not pretend to understand, “the terms of the SISP” also allowed PwC to accept bids after the deadline, so in total, it received 21 LOIs.

In its eighth report on Bridging, PwC stated that the LOIs “varied in nature” and included offers to purchase some or all of the property; offers to recapitalize, invest in, arrange or reorganize the respondents, the property or the business or to manage some or all of the business; and “hybrid proposals,” meaning some combination of sale and investment.

PwC winnowed these 93 down to 11 bidders who were permitted to proceed to the second phase of the process. The deadline for bids was November 8 but PwC doesn’t seem to have announced any results yet.


Representative Counsel

On October 14, the court appointed the law firm Bennett Jones to represent all Bridging Finance unitholders (i.e. people invested in Bridging funds) except those who “opt-out.” The job includes helping to assess the bids received in the second phase of the bidding process.

The appointment was unopposed.

Worth noting: in attendance at the hearing were lawyers for The Coco Group (the Ontario construction firm owned by the brother and sister team of Rocky and Jenny Coco), the University of Minnesota Foundation and Thomas Canning (Maidstone) Limited, presumably all Bridging unitholders.


Fun with the Big Four

PwC, Deloitte, KPMG, EY logosPwC is one of the so-called “big four” accounting firms, the others being Deloitte, Ernst & Young (EY) and KPMG.

KPMG was the auditor of Bridging’s funds until it resigned from that position effective Oct. 13.

In an October 27 letter to Bridging unitholders, PwC said it had recently advised KPMG it was “analyzing and assessing claims … against various parties, including KPMG.” In other words, that it was considering suing the accounting giant.

But before we grant PwC too much moral high ground, I think it’s worth taking a look at the current legal landscape as regards Big Four accounting firms.

PwC, for example, is itself under investigation by Hong Kong’s audit regulator for its role in China’s Evergrande affair. As the Financial Times explained:

The Chinese property developer has expanded aggressively since it was founded in 1996. It has grown into one of China’s largest companies, with more than 1,000 real estate projects in 234 cities and total liabilities of $300bn — equal to around 2 per cent of China’s gross domestic product. Now it is in the midst of a crisis, teetering on the brink of defaulting on some of its loan repayments.

In its accounts for the first half of this year, its board of directors expressed concerns about the company’s ability to continue as a going concern — one of the first times Evergrande has publicly acknowledged its serious financial problems.

Yet just six months earlier, its longtime auditors PwC had signed off its financial statements with no such warning.

Then there’s Deloitte, which has been slapped with a class action (in New York federal court) that alleges nearly 90,000 retirement plan participants and beneficiaries have “lost millions as a result of excessively high fees.”

The lawsuit contends that the defendants, i.e., the fiduciaries of the Deloitte plans, which qualify as “jumbo” plans in the defined contribution marketplace given the amount they hold in assets, failed to try to reduce the plans’ fees and expenses or exercise appropriate judgment to scrutinize each investment option despite possessing substantial bargaining power.

Ernst & Young was in the spotlight in 2020, when a UK court awarded a whistleblower, fired by the firm, $11 million:

The court accepted claims that EY had participated in accounting misconduct that reached its senior ranks. According to the judgment, the firm colluded with Kaloti Jewellery International to hide illicit exports and helped obscure audit findings that included suspected money laundering.

But wait, there’s more, according to the Financial Post:

The Kaloti saga is one of three fires the group is fighting on multiple continents. They have drawn scrutiny to whether the central controls that guard the behaviour of its auditors around the world are failing.

EY is facing a regulatory investigation into its oversight of NMC Health Plc, a collapsed London-listed hospital group headquartered in Abu Dhabi, which looks set to become one of the largest scandals of the FTSE 100. Questions are also mounting about its audits of Wirecard AG, a Dax 30 fintech business at the centre of what threatens to become one of the largest accounting scandals in German postwar history.

And in 2019, the US Securities and Exchange Commission (SEC) hit KPMG with a $50 million penalty for:

…altering past audit work after receiving stolen information about inspections of the firm that would be conducted by the Public Company Accounting Oversight Board (PCAOB). The SEC’s order also finds that numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results.

KPMG agreed to pay.

All to say, PwC suing KPMG is pretty funny.


No accounting

As the Globe and Mail detailed in October, PwC has been suggesting for some time there were “deficiencies” in Bridging’s audited financial statements:

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.

As of its eighth report, PwC had yet to provide NAVs for Bridging’s funds.



BlackRock logoBlackRock is a New York-based asset manager with over US$9 trillion in assets under management and a founder/chairman/CEO whose name is — I kid you not — Larry Fink.

The firm has “at least” two outstanding loans to Bridging both of which, according to the Globe and Mail, came about (surprise, surprise) through “a series of complex transactions.”

BlackRock has a senior secured claim on Bridging worth roughly $50-million, according to sources and court documents. In 2019, Bridging was valued at $100-million.

The gist of the Globe article was that BlackRock will play an outsized role in determining Bridging’s fate, although in July, PwC scotched rumors that BlackRock and  Canaccord Genuity Group Inc were in talks to buy the troubled lender.


Bobby Anand

On October 14, Chief Justice G.B. Morawetz of Ontario’s Superior Court of Justice ruled against a former Bridging Finance employee, Bobby Anand, who was in the process of suing the company for wrongful dismissal and breach of contract when it was placed in receivership and all proceedings against it were stayed.

Anand was asking the court to lift the stay on proceedings against Bridging to allow his case — which was filed in 2017 — to proceed. (It was scheduled to be heard in November 2021.)

The court, however, declined to do so, saying Anand — who is claiming $450,000 and who says the protracted litigation is having “a measurable and unfair impact on his health” — had failed to prove that he would suffer “any worse harm or unfair treatment” as a result of the stay than would any other party.

And that’s all she wrote about Bridging Finance.