Bridging Finance is an Ontario private-debt fund that touted itself as a seemingly risk-proof investment option but has been facing intense scrutiny for the past couple of years by the Ontario Securities Commission over concerns of investment fraud. Now, investors are facing losses of over $1 billion dollars as an appointed receiver is struggling to recover as many assets as possible. In the latest development, the firm’s appointed receiver, Price Waterhouse Cooper, which had been exploring options to sell the beleaguered company, filed a motion to scrap the plan to sell and pursue a liquidation of the company’s assets instead. A number of impacted investors have indicated their opposition to this plan, and so an Ontario court has delayed the decision on the application until more investors have a chance to provide input on their preferred plan for asset recovery.
Billion-Dollar Investment Fund Raises Concerns Among Investment Advisors and Regulators
Bridging Finance is a relatively young company, having only been operational for ten years. It was started in 2012 by former corporate finance executive Natasha Sharpe and eventually taken over by her husband, David Sharpe when he joined as Chief Operating Officer one year later. The fund primarily invested in private debt for small and mid-sized businesses, and claimed an annual return of 8%, with no losses. The stellar track record raised questions among outside advisors, with one, Alejandro Cardot, taking the time to carefully examine Bridging Finance’s financials after a relative asked his opinion as to whether they should invest in the fund. When Cardot had satisfied himself that Bridging Finance’s claims were not plausible, he filed a whistleblower claim with the Ontario Securities Commission (OSC). However, the OSC was already operating its own investigation into the organization.
On March 31, 2021, Bridging Finance’s net assets were valued at $2.09 billion. One month later, the OSC requested a court order to put the company under the care of a receiver. When the order was granted, Price Waterhouse Cooper was appointed as receiver and began the process of reviewing the company’s internal practices, its funds, and its investment claims. It has also been attempting to arrange a sale of the company in order to recover assets to return to Bridging Finance’s investors. However, Price Waterhouse Cooper indicated just last month that it would seek the court’s approval to put a stop to the sale process, citing ‘significant issues’ with the company’s various portfolios. Instead, the receiver proposes liquidating Bridging Finance’s assets to recover funds on behalf of the investors, which it indicated would be the most prudent way to move forward.
The receiver stated in its motion that there was negligible support among investors to move ahead with a sale, after consulting with approximately 50% of impacted investors. To date, some bids have been made to purchase Bridging Finance, including an all-cash offer and a restructuring plan. However, the receiver stated that the preferred option among investors is to move forward with liquidation by recovering assets on a ‘continued realization plan’. Under this plan, Price Waterhouse Cooper would continue to manage Bridging Finance’s loan portfolios and collect and return funds to the investors as they are received. This plan is estimated to take approximately five years and is projected to recover between just 34-42% of the net asset valuation amount, resulting in an overall loss to investors totalling over $1 billion.
Group of Investors Promise to Challenge Liquidation Plan
Despite the claims by Price Waterhouse Cooper, a number of Bridging Finance investors, known as the Concerned Unitholders of Bridging Finance, have released a statement claiming that they do not approve of the receiver’s plan to forgo selling Bridging Finance. Instead, they claim that the receiver’s actions amount to an abuse of power. In the statement, the Unitholders claim the following:
In recent weeks, a growing number of Unitholders have raised concerns that PwC is trying to arbitrarily wind down the sales process without a Unitholder vote and approval. They say the receiver is acting in its own self-interest, deliberately creating losses in the portfolio through improper management, at the same time charging exorbitant fees.
The investors behind the statement instead support the sale of Bridging Finance to one of the firms bidding to purchase Bridging Finance’s investment portfolios, BlackRock Inc. BlackRock is an asset management company, and one of Bridging Finance’s current investors. BlackRock raised concerns with the court when Price Waterhouse Cooper requested to move away from a sale, saying that “the receiver is acting in its own self-interest, deliberately creating losses in the portfolio through improper management, at the same time charging exorbitant fees”.
BlackRock officially requested that the court delay its decision on the request to forgo a sale in order to allow time to provide the Bridging Finance investors with full disclosure of all existing options and allow for a formal vote among the affected investors as to how to move ahead.
The court agreed to postpone its ruling until March 21, 2022, when a new hearing will be held to review the preferences of the full group of investors, at which point the court will decide the best path forward to recoup the investor’s funds. We will continue to watch this case as it develops.
For Unparalleled Legal Guidance on Receiverships as a Remedy in Fraud Cases Contact Milosevic Fiske LLP
If you require legal guidance with a financial advisor fraud and/or investment loss matter, contact Milosevic Fiske LLP. Our highly experienced litigation lawyers help clients see through the dense forest of even the most complicated disputes through the use of receiverships. We regularly represent clients whose investments, savings, and wealth management plans have been negatively impacted by the actions of their financial advisors. Call us at 416-916-1387 or contact us online to learn more about how we can help.