Six Bridging Finance insiders to testify for the OSC in private lender’s alleged fraud case

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Six senior Bridging Finance Inc. employees will be witnesses for the Ontario Securities Commission in its case against the private lender’s top executives, suggesting former company insiders will provide additional evidence of Bridging’s alleged fraud, dishonesty and deceit.

Disclosure of the six insider witnesses was made Monday on the first day of the OSC’s enforcement hearing against Bridging Finance and the husband and wife who ran the private lender, David and Natasha Sharpe. Former Bridging Finance chief compliance officer Andrew Mushore is also a defendant.

In their opening argument, OSC lawyers alleged the Sharpes directly benefited from a fraud that saw approximately $19-million of investor funds diverted to Mr. Sharpe’s bank account, among other alleged misappropriations. All three defendants also allegedly engaged in a “sophisticated and multi-faceted cover up” that included amending loan documents and destroying 34,000 e-mails in a “targeted effort to cleanse the record of evidence that might prove the wrongdoing,” said OSC lawyer Mark Bailey.

The OSC also alleged that all three defendants provided a “false narrative” to its investigators while they were under oath, and that Mr. Sharpe sent intimidating texts and voicemails laced with profanities to Bridging employees who had knowledge of the alleged misconduct.

Three of the former employees who will be OSC witnesses sat on the lender’s credit committee that approved loans, and the regulator suggested they will confirm that the Sharpes altered loan documents to conceal certain approvals.

Bridging Finance was put under a court-ordered receivership in April, 2021, after allegations that the money manager improperly used investor funds to benefit some of its founders and executives. The OSC took formal action against the Sharpes and Mr. Mushore in March, 2022, and the OSC’s hearings into these allegations started Monday, more than two years after the receivership rocked Bay Street.

Bridging specialized in making short-term loans to high-risk borrowers, and every major bank and independent brokerage in Canada sold its funds. At the time of its receivership, Bridging managed $2.09-billion on behalf of 26,000 investors, many of them retail investors. Current estimates peg investor losses at $1.3-billion, close to two-thirds of all money put in.

The hearings, overseen by a panel of OSC adjudicators, are scheduled to run intermittently until February, 2024, and the OSC is seeking to ban the Sharpes and Mr. Mushore from various types of participation in Ontario’s capital markets. The regulator is also asking for penalties of up to $1-million for each alleged breach of securities laws, and it is seeking to recover any proceeds that were generated from the alleged misconduct.

Mr. Sharpe announced Monday that he will not attend or otherwise participate in the hearings because he believes the OSC’s case against him cannot proceed. The former chief executive has been fighting the regulator over the public disclosure of his compelled testimony, however, the OSC’s tribunal has already ruled against him in this matter.

The OSC’s case is largely built around three of Bridging’s borrowers – Sean McCoshen, Rishi Gautam and Gary Ng – and the regulator alleges loans to entities owned or controlled by these three were used to misappropriate investor funds.

Mr. McCoshen is a Winnipeg businessman who was the principal of Alaska-Alberta Railway Development Corp. (A2A), which was Bridging’s largest borrower. The OSC alleges that between 2016 and 2019 a numbered company controlled by Mr. McCoshen, 704 Manitoba, transferred approximately $19-million of Bridging investors’ funds into Mr. Sharpe’s personal chequing account. On Monday, Daniel Tourangeau, a forensic accountant with the OSC, said $18.2-million “can definitely be identified as investor funds.”

The OSC also alleges that Mr. Sharpe instructed Bridging Finance staff to alter loan documents to show that the recipient of the loan advances was A2A instead of Mr. McCoshen’s numbered company.

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 its former investment management partner. The paper trail for that transaction was disguised to make it appear as though the purchase had been funded through a loan that Bridging obtained, when in fact the funds were taken from one of Bridging’s own investor funds, the OSC alleges.

At the hearing Monday, the OSC alleged that Bridging Finance’s credit committee was never told the lender’s own fund would be used to cover the purchase of the management contract. “We’ll have credit committee members testifying to this fact,” Mr. Bailey said. The OSC also alleged Mr. Sharpe created a false loan invoice and used Mr. Gautam’s signature from another loan document to make it appear as though the borrowed money came from elsewhere.

As for Mr. Ng, a businessman who purchased a 50-per-cent stake in Bridging Finance for $50-million in 2019, the OSC alleges impropriety related to multiple loans Bridging made to him. The OSC alleges the Sharpes approved a $32-million loan in June, 2019, to a company that Mr. Ng controlled even though he had at that point contractually committed to buy half of Bridging, and that Bridging Finance also advanced another $35-million to Mr. Ng after he bought 50 per cent of the company. The OSC alleges the Sharpes hid this transaction from the credit committee.