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The One, a skyscraper currently under construction in downtown Toronto, on Feb. 13.Eduardo Lima/The Globe and Mail

Bridging Finance Inc.’s majority owner, Jenny Coco, allegedly used investor funds to secure a large construction loan for her luxury condo project with developer Sam Mizrahi, according to a lawsuit filed in an Ontario court.

Ms. Coco and Mr. Mizrahi are co-owners of an ambitious condo development, known as The One, in Toronto’s upscale Yorkville neighbourhood. Court filings allege that around 2016 they looked for funding to get the project up and running, and turned to China-East Resources Import & Export Co., or CERIECO, a state-owned Chinese enterprise.

CERIECO ultimately agreed to advance a $213-million loan, but only after Ms. Coco arranged for Bridging Finance’s flagship investor fund, the Bridging Income Fund, to act as one of several guarantors, CERIECO alleges in the lawsuit. The loan is now in default, CERIECO alleges.

CERIECO also alleges the name Bridging Finance, as well as Ms. Coco’s family business at the time, Coco Paving Group, were redacted from certain versions of the guarantee. They were instead referred to as “confidential guarantors,” and the contract’s signature pages were also removed, the lawsuit alleges.

Natasha Sharpe, Bridging’s co-owner and former chief executive officer, allegedly signed the document that named the Bridging Income Fund as a guarantor.

None of CERIECO’s allegations have been proven in court. But if a court agrees the fund was a guarantor, it could mean Bridging is responsible for covering the loan, resulting in even greater losses for its 26,000 mostly retail investors.

The alleged guarantee also further entwines Mr. Mizrahi, a well-known developer, in the Bridging affair that has rocked Bay Street and raised questions about what disclosures, if any, were made to investors.

As a private lender, Bridging made short-term loans to high-risk borrowers, and by early 2021, Bridging’s debt funds had attracted $2.09-billion in assets under management.

However, Bridging was placed under the control of a court-appointed receiver in April, 2021, after the Ontario Securities Commission discovered several problematic loans and alleged impropriety. The receiver, PricewaterhouseCoopers LLP, hoped to sell the company to new owners, but a sale process yielded unsatisfactory bids because Bridging’s loan portfolio is in disarray.

In a report to investors, PwC alleged a lack of appropriate corporate governance, including Bridging’s failure to address conflicts of interest, inconsistent and often ineffective loan management practices, and failure to appropriately recognize and account for loans that were unlikely to be fully repaid.

PwC is now winding down Bridging’s business. In February, the receiver estimated investors could lose $1.3-billion, or 62 per cent, of their assets. However, this projection did not account for the alleged loan guarantee, because its existence was not made public in court until late May.

The lawsuit alleges that when CERIECO agreed to lend to Mr. Mizrahi and Ms. Coco’s Yorkville condo project, it stipulated strict terms, including a requirement that any third-party loan guarantees had to come from entities worth at least double the loan size.

Ms. Coco and Mr. Mizrahi both pledged their personal businesses as collateral, but Coco Paving Inc. did not meet the requirement. To add an extra backstop, Ms. Coco arranged for the Bridging Income Fund to act as an additional guarantor, CERIECO alleges in the lawsuit.

The lawsuit alleges Mr. Mizrahi, Ms. Coco and a middleman who allegedly helped secure the loan, Bosco Chan, committed fraud, conspiracy and breach of fiduciary duty. CERIECO says Mr. Chan is at the heart of the alleged fraud, and he improperly acted on behalf of the lender and released Bridging and Coco from their guarantees without CERIECO’s knowledge.

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Jenny Coco, the Chief Executive Officer for Coco Paving Inc., a division of the Coco Group of Companies.Anne-Marie Jackson/The Globe and Mail

The Chinese lender is also requesting a court-ordered investigation into the matter, which would include an independent inspector with the power to probe, among other things, the affairs of Coco Paving and several of Mr. Mizrahi’s companies.

Bridging is not a named defendant in the lawsuit, and it is possible Mr. Mizrahi and Ms. Coco have available funds to make the loan repayment.

Ms. Coco did not return requests for comment. Natasha Sharpe and David Sharpe, who took over from Ms. Sharpe as Bridging’s chief executive at the end of 2016, and who is her husband, both declined to comment through their respective spokespeople.

In March, the OSC made formal allegations against the Sharpes, as well as against Bridging’s former chief compliance officer, Andrew Mushore, alleging the trio perpetrated a fraud on investors. The regulator is asking for penalties of up to $1-million for each alleged breach of securities laws, among other things. To date, no formal allegations have been made against Ms. Coco.

CERIECO’s allegations are not the first time questions have been raised about Bridging’s ties to Mr. Mizrahi, the real estate developer who partnered with Ms. Coco on The One development.

In February, The Globe and Mail reported that one of Bridging’s worst-performing loans was made to Mr. Mizrahi, and that the bad debt has languished on Bridging’s books for a decade. The loan was made in support of a different condo development located at 181 Davenport Rd., also in Toronto’s upscale Yorkville neighbourhood.

The loan was one of the first Bridging ever underwrote, and it has been in default since 2018. Mr. Mizrahi’s 181 Davenport project was set to be completed in the fall of 2016, according to court filings, but for reasons that aren’t known, the project’s last unit was sold four years later in July, 2020.

There is no evidence on the public record that Bridging, which was known for using the courts to pursue debtors in default, made efforts to recover the Mizrahi debt through litigation.

Ms. Coco is Bridging’s majority owner, and she sat on the credit committee that approved loans. The 181 Davenport loan raised more questions about Bridging’s disclosures to investors and alleged conflicts of interest.

CERIECO’s allegations amplify these issues, because it seems investors did not know about the loan guarantee.

In a statement to The Globe, PwC said it is aware of CERIECO’s allegations, but declined to comment further.

CERIECO has resorted to suing Ms. Coco and Mr. Mizrahi because the Chinese lender says it only recently discovered that Coco Paving and Bridging had been released from their loan guarantees. After investigating the matter, CERIECO alleges it discovered that an unauthorized officer allegedly signed documents that ended the guarantees.

The lawsuit alleges Long Hai Wang, the president of CERIECO China, was originally going to be the only director of the Canadian subsidiary that advanced the loan for The One, but CERIECO was advised it would be beneficial to name a Canadian resident as another director. Listening to this advice, the company says it named Bosco Chan, a Chinese and Canadian citizen living in Ottawa, as a second director. Mr. Chan was the intermediary who helped broker the loan.

CERIECO alleges it included a bylaw in the loan document that stipulates “contracts, documents or instruments in writing requiring the signature of the corporation shall only be signed on behalf of the corporation by Mr. Long Hai Wang.”

Despite this, the Chinese lender alleges Bosco Chan switched the guarantors in exchange for a “release fee” of $7.5-million to be paid from Coco Paving to CERIECO.

Ultimately, however, “none of the purported cash consideration for the release was paid to CERIECO,” the lawsuit alleges. Mr. Chan allegedly admitted to CERIECO he accepted a personal payment of $4.5-million and directed a further $3-million to be paid to Mr. Mizrahi’s personal account.

It is unclear when Mr. Chan is alleged to have told CERIECO about these actions. Lawyers for the Chinese lender declined to comment, and Mr. Chan did not return a request for comment. Mr. Mizrahi also did not respond to questions from The Globe.

The One skyscraper is expected to be 85 storeys, making it one of the tallest condo towers in Canada, but the project is long-delayed. Apple Inc., which was set to be the anchor retail tenant, has sued to terminate its lease because the project missed multiple deadlines. Apple is “profoundly disappointed with Mizrahi,” the company wrote in a January lawsuit.

In response, Mr. Mizrahi has argued that events outside his control, including COVID-19 and labour disruptions, caused the delays.

Since 2014, Ms. Coco has injected $30-million of equity into the project and lent The One $90-million. Her family company, Coco Paving, was recently sold to Green Infrastructure Partners, a new entity created by GFL Environmental Inc. and chaired by GFL’s chief executive Patrick Dovigi.

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