Canada’s top capital markets regulator is investigating officers and shareholders of Bridging Finance Inc., one of the country’s largest private lenders, on allegations they misappropriated investor funds.

An Ontario court appointed PricewaterhouseCoopers to take control of Bridging at the request of the Ontario Securities Commission, pending the outcome of the investigation. The move was made public Saturday.

Bridging, based in Toronto, was run by a husband-and-wife team, David Sharpe and Natasha Sharpe. The firm, which had about $2 billion (US$1.6 billion) in assets under management as of December, lends to small and mid-sized companies involved in everything from milling flour to delivering groceries.

In court documents, the OSC alleges the firm and senior executives mismanaged funds and failed to disclose conflicts of interest.

Among the alleged conflicts, Chief Executive Officer David Sharpe received $19.5 million in undisclosed payments into his personal checking account from a company controlled by entrepreneur Sean McCoshen, the commission says in documents. During that same period, Bridging’s funds were lending more than $100 million to McCoshen’s other companies, the documents say.

Leased Bentleys

According to an affidavit sworn by OSC forensic accountant Daniel Tourangeau, much of the undisclosed money was moved into David Sharpe’s investment accounts at Bank of Montreal and Richardson GMP; at least $1.4 million “appears to have been later transferred offshore.”

About $128,000 was paid to a unit of Tesla Inc. and almost $100,000 to a car-leasing company, which Tourangeau believes was used to lease a 2013 Bentley GTC Mulliner and a 2018 Bentley Bentayaga, the affidavit states. About $830,000 was used for donations, including to Ontario’s Queen’s University.

Through a spokesperson, Bridging Finance, David Sharpe and Natasha Sharpe declined to comment.

The company behind the proposed railway from Alberta to Alaska, which is backed McCoshen, said it was “disappointed” to learn about the allegations.

“The Corporation is a client of Bridging Finance, as are many others,” Alaska to Alberta Railway Development Corp. said in a statement, adding it will be “cooperating fully with relevant authorities in their investigation of Bridging Finance.”

The securities commission says it has uncovered evidence that Bridging and certain members of its senior management -- including David and Natasha Sharpe -- breached securities laws and regulations and misled investigators about transactions.

‘Serious Concerns’

One of the central accusations is that Bridging misappropriated about $35 million “to complete an acquisition for its own benefit” -- a deal with investment manager Ninepoint Partners LP for an interest in an income fund the two firms had been jointly operating.

An executive at Ninepoint told the OSC that Bridging had transferred $20 million from the income fund to pay a loan and then reversed the transaction. The money came back into the jointly-managed fund through accounts related to other Bridging funds, rather than from a law firm trust account, which raised a red flag.

Ninepoint then questioned Bridging about these transactions, but wasn’t satisfied with their responses and threatened the latter with litigation, according to documents. Bridging then offered to buy out Ninepoint -- which the OSC alleges was ultimately done with misappropriated money through a complex series of transactions.

“The gravity of these regulatory breaches raises serious concerns about the ability of senior management to operate in Ontario’s capital markets in compliance with securities law,” the OSC said in court documents. Bridging’s investors “can no longer rely on BFI or its senior management to protect their best interests.”

“Investors deserve a full investigation into the business activities of BFI and the Sharpes and to know that their investment funds are in the hands of honest, competent and responsible custodians,” the regulator added.

Lack of Disclosure

Entrepreneur Gary Ng, who has been accused by another Canadian investment regulator of falsifying documents and creating fake brokerage accounts to secure the money to buy one of Vancouver’s oldest investment firms, PI Financial Corp., is also mentioned in the documents.

Ng bought a stake in Bridging in 2019, but the OSC alleges that more than half of the $50 million he used for the deal came from investor funds that Bridging managed.

Bridging’s funds loaned approximately $119 million to three companies owned by Ng, without properly disclosing to investors that Ng was in negotiations to buy shares from Bridging’s main shareholders, the regulator said.

The OSC also found evidence of unexplained transfers made by Ng into David Sharpe’s personal account. Ng declined to comment on the allegations.

The OSC issued a temporary order halting trading of Bridging Finance funds and suspended the David Sharpe’s registration as “Ultimate Designated Person” of the company.