CSO takes formal action against executives in Bridging Finance fraud case

David and Natasha Sharpe, of Bridging Finance Inc., in the company’s downtown Toronto offices on April 11, 2019.Fred Lum/The Globe and Mail

David and Natasha Sharpe, the husband-and-wife executive team that ran Bridging Finance Inc. until its 2021 receivership, defrauded investors out of millions of dollars through “dishonesty and deceit,” the Ontario Securities Commission alleged Thursday in an enforcement action against the couple.

The OSC’s allegations also target Bridging as a corporation, as well as Bridging’s former chief compliance officer, Andrew Mushore. They are the first set of formal charges laid in the case since the regulator successfully urged an Ontario judge to place the private lender under the control of a receiver 11 months ago.

The allegations, which focus on Bridging loans that financially benefitted the Sharpes, have rocked Bay Street. Every major bank and independent brokerage in Canada sold the funds Bridging managed, which specialized in making short-term loans to high-risk borrowers. At the time of its receivership, Bridging managed $2.09-billion on behalf of 26,000 investors, most of them retail investors.

Earlier this week, an Ontario court approved a plan by Bridging’s receiver, PricewaterhouseCoopers LLP, to wind down the company after a five-month sales process did not result in enticing bids for Bridging’s loan portfolio. PwC has estimated total losses will be around $1.3-billion.

The OSC case will be decided by a panel of the commission’s adjudicators. The OSC is seeking to ban the Sharpes and Mr. Mushore from various types of participation in Ontario’s capital markets, and is asking for penalties of up to $1-million for each alleged breach of securities laws.

Ontario judge approves wind-down of Bridging Finance, investors estimated to lose $1.3-billion

None of the OSC’s allegations have been proven before its adjudicators. Natasha Sharpe did not respond to a request for comment, Mr. Mushore declined to comment, and a lawyer for David Sharpe said his client plans to challenge the OSC’s case.

Many of the allegations against the Sharpes and Mr. Mushore were made public by the OSC when it obtained the receivership last year, including that Mr. Sharpe allegedly received secret payments from a Winnipeg businessman, Sean McCoshen.

Mr. McCoshen was the principal of Alaska-Alberta Railway Development Corporation, a company that was Bridging’s largest borrower.

The OSC alleges that, between 2016 and 2019, a numbered company controlled by Mr. McCoshen transferred $19.5-million in Bridging investors’ funds into Mr. Sharpe’s personal checking account. Natasha Sharpe, the OSC alleges, received $250,000 of investors’ money from Mr. McCoshen in September, 2017.

Mr. McCoshen’s company, which is now insolvent, had borrowed an estimated $200-million from Bridging for the stated purpose of building a railway to transport bitumen from Northern Alberta to the ports of Alaska.

The regulator also alleges the Sharpes and Mr. Mushore participated in a scheme that involved using $35-million of investor money to buy out a co-management contract between Bridging and another private lender, Ninepoint Partners LP, in 2018. The paper trail for that transaction was disguised to make it appear as though the purchase had been funded through a loan Bridging obtained, when in fact the funds were taken from one of Bridging’s own investor funds, the OSC alleges.

“The Sharpes directed Bridging personnel to falsify Bridging’s records to conceal the true source of the funds,” the OSC alleges. The regulator has not alleged that Ninepoint was aware of the source of the funds.

The OSC also alleges impropriety related to multiple loans Bridging made to Gary Ng, a businessman who purchased a 50-per-cent stake in the company for $50-million in 2019.

The Sharpes approved a $32-million loan in June, 2019, to a company Mr. Ng owned and controlled, even though he had at that point contractually committed to buy half of Bridging. The OSC alleges the Sharpes directed an employee to prepare documents for Bridging’s credit committee, which approves loans, saying the money would be used by a numbered company to purchase commercial real estate developers in Canada. According to the OSC, the Sharpes did not tell the credit committee that the numbered company was wholly owned by Mr. Ng, nor that the acquisition agreement for Mr. Ng’s stake in Bridging had been signed.

Two months later, in August, 2019, the Sharpes orchestrated a second $35-million payment to the same numbered company, even though Mr. Ng was then Bridging’s largest individual shareholder. “The August advance was made in secret and was not approved by the credit committee,” the OSC alleges, adding that Natasha Sharpe “fraudulently altered loan documents” so that it appeared as though the June loan included a potential second advance of up to $35 -million.

Then, in November, 2019, David and Natasha Sharpe each received a $500,000 payment from Mr. Ng, the OSC alleges. According to the regulator, the payments did not serve any legitimate commercial purpose, nor were they disclosed to investors “despite the clear conflict of interest.”

Mr. Ng has played a central role in Bridging Finance’s collapse. Before the allegations came to light, he was accused of using falsified collateral to help finance his purchases of multiple investment firms, including his piece of Bridging.

In March, 2020, Bridging re-purchased his 50-per-cent stake for $5. Regulatory probes related to the falsified collateral contributed to the early scrutiny of Bridging’s loan portfolio.

What is Bridging Finance and who are its leaders?

Early this year, Mr. Ng was charged by the RCMP’s Integrated Market Enforcement Team (IMET) with one count of fraud over $5,000 and one count of laundering the proceeds of crime.

The OSC’s formal allegations also level new accusations against Mr. Sharpe concerning alleged “intimidating texts and voicemails” he sent in the summer of 2021, after the receivership was in place. One of the recipients of those messages was Mr. Mushore, the statement of allegations says. “David Sharpe knew that these individuals were likely to be interviewed by [OSC] staff given the information they possessed. These profanity-laden communications contained disparaging insults and threats of physical violence.”

When the OSC started its Bridging probe in 2020, it relied on its powers of compulsion to force Bridging to hand over internal records. It also issued summonses to Mr. Sharpe, Natasha Sharpe and Bridging part-owner Jenny Coco, compelling them to answer investigators’ questions.

Although those powers are very effective for gathering evidence, the regulator can’t pursue a quasi-criminal case when it uses them. Canadian laws, and the right not to self-incriminate, mean this sort of compelled evidence cannot typically be used in court.

As a result, the regulator is proceeding against the trio through its administrative tribunal, which means that it cannot seek any sort of incarceration as a potential penalty.

Separately, the OSC released a lengthy decision Thursday in response to a complaint from Mr. Sharpe that the regulator had acted inappropriately by publicly releasing transcripts of his compelled interviews.

A three-person adjudicative panel agreed with Mr. Sharpe that, when OSC lawyers went to court in April, 2021 to put Bridging under the control of a receiver, they should not have included the transcripts in public court files.

“There is a high expectation of privacy with respect to all compelled testimony,” the panel said. It added that the purpose of that expectation is to “give some comfort to compelled witnesses that the information they provide will remain confidential.” Investigators were required to seek an order from an OSC panel before releasing the transcripts, which would have afforded Mr. Sharpe an opportunity to oppose the move, the panel said.

However, the panel disagreed with Mr. Sharpe’s contention that the investigation into him should be revoked as a consequence of that mistake. This means the OSC is proceeding with its case. In fact, Thursday’s statement of allegations against the Sharpes was released to the public 30 minutes after the adjudicative panel released its decision.

In an e-mailed statement, Alistair Crawley, Mr. Sharpe’s lawyer, said his client would use the panel’s conclusion to challenge the formal allegations.

“Instead of reflecting on the panel’s rebuke of its conduct, [the regulator] immediately notified Mr. Sharpe’s lawyers it will bring public allegations against Mr. Sharpe,” Mr. Crawley wrote. “Mr. Sharpe’s legal team will seek a remedy for the OSC’s conduct before the Hearing Panel.”

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