Bridging Finance Inc. owners Jenny and Rocky Coco are being sued by the private lender’s receiver and its senior creditor, BlackRock Inc., for their alleged roles in Bridging’s demise, marking the first instances in which either sibling has faced direct legal action in the two-year saga.
The two separate lawsuits, filed in Ontario court, allege negligence, fraudulent misrepresentation and breaches of fiduciary duty, among other things. The cases name multiple other Bridging officials as defendants, including David and Natasha Sharpe, the husband-and-wife duo who previously ran the lender, as well as Bridging’s former chief financial officer, general counsel and chief compliance officer.
The lawsuit by the receiver, PricewaterhouseCoopers Inc., alleges damages worth $1.7-billion, while BlackRock is seeking $75-million. Both parties have also asked a judge to approve an accounting or tracing order to track any funds that were wrongfully diverted into any type of property owned or registered by the defendants.
Jenny and Rocky Coco made their names running Coco Paving Inc., the road paving empire their father built out of Windsor, Ont., but branched into financial services in 2012 by creating Bridging. When the private lender was put under the control of a court-appointed receiver in April, 2021, the siblings jointly owned 58 per cent of the company.
Ms. Coco is already a defendant in lawsuits connected to Bridging, because of allegations that she may have used investor money as part of her business relationship with Toronto real estate developer Sam Mizrahi, but the two new cases deal directly with her alleged role in the private lender’s demise. In addition to her ownership and board seat, Ms. Coco also sat on Bridging’s credit committee, which approved loans.
Before its downfall, Bridging was one of Canada’s best-known private lenders. Its business model was built on raising money from retail investors and then lending those funds to mid-sized companies that didn’t meet the credit standards of banks. At its peak, Bridging managed $2.09-billion on behalf of 26,000 investors.
Bridging’s receiver estimates that investors will lose $1.3-billion, and to recoup as much money as possible, PricewaterhouseCoopers is now suing multiple parties, including the lender’s former auditor, KPMG LLP, for $1.4-billion. The receiver has also filed lawsuits against Gary Ng, who once owned 50 per cent of the private lender, and Sean McCoshen, who once was Bridging’s largest borrower, among others.
The Ontario Securities Commission is pursuing fraud charges against David and Natasha Sharpe, and against Bridging’s former chief compliance officer, Andrew Mushore. The Globe and Mail reported in November that the Royal Canadian Mounted Police are also investigating Bridging’s collapse, but no charges have been laid.
Bridging ceased normal operations in April, 2021, after the OSC disclosed that it had been investigating the company for alleged self-dealing and fraud, with a particular focus on David Sharpe, who was then chief executive officer, and Natasha Sharpe, Bridging’s then-chief investment officer and previous CEO. A year later the regulator laid its formal charges – but left the Cocos out.
The new lawsuits bring Jenny and Rocky Coco into the legal fight. A major argument in the receiver’s lawsuit is the allegation that the Cocos – and the Sharpes – enriched themselves by misrepresenting the true values of Bridging’s loans.
Between January, 2017, and December, 2020, investors paid more than $52-million in management fees and more than $101-million in performance fees to the fund manager. The receiver alleges Natasha Sharpe, Jenny Coco and Rocky Coco, who co-owned it, took out dividends totalling more than $28-million.
“The over $28-million in dividends they granted themselves were improper and unearned as they were derived from a calculation of the net asset value that they knew did not reflect the impairments of Bridging loans,” the receiver alleged.
In the second lawsuit, BlackRock also makes a number of allegations, but takes particular issue with being misled about money lent to Gary Ng.
Mr. Ng initially bought a 50-per-cent stake in Bridging for $50-million in mid-2019, and a few months later BlackRock lent $52.5-million to Bridging. As part of the loan agreement, Bridging officials agreed they “had not loaned money to any shareholders or their affiliates.”
It has since come to light that Bridging lent Mr. Ng $32-million in June, 2019, and the money was supposed to be used for buying small to mid-sized commercial real estate ventures. Instead, it was allegedly used to fund his purchase of Bridging.
Lawyers for Jenny and Rocky Coco did not return requests for comment. David Sharpe’s lawyer declined to comment, as did Natasha Sharpe’s lawyer.