Private lenders in Canada are rushing to reassure investors after the country’s top capital markets regulator disclosed an investigation into alleged mismanagement and self-dealing at Bridging Finance Inc., a Toronto firm that provides credit to businesses.

Executives at five other private lending firms in Canada said that the news of the Ontario Securities Commission investigation of Bridging over the weekend prompted numerous inquiries from their investors. They’re asking about those firms’ lending practices, how they place values on loans and how they prevent self-dealing, the executives said. They’re also asking how any new oversight of the sector might affect business.

Colin Kilgour, a founder of Kilgour Williams Capital, took an empathetic tone in a note to his clients, offering full disclosure to allay any of their fears. “In the interest of full transparency, we welcome any investor in the fund who wishes to review the valuation methodology and/or the mark-to-market of the loan portfolio,” he wrote.

An executive at another lender, who asked not to be identified, acknowledged that the scrutiny of Bridging is raising concerns about the sector as a whole.

An Ontario court last week ordered PricewaterhouseCoopers to take control of Bridging, which manages about $2 billion (US$1.6 billion) in loans mostly to small and midsize companies. That order was requested by the securities commission, which is looking into whether Bridging and senior executives misappropriated investor funds and failed to disclose conflicts of interest.

The OSC says it has evidence that Bridging Chief Executive Officer David Sharpe received undisclosed payments into his personal checking account from a company controlled by Canadian entrepreneur Sean McCoshen. During that same period, Bridging’s funds were lending more than $100 million to McCoshen’s other companies, the documents say.

According to an affidavit sworn by OSC forensic accountant Daniel Tourangeau, much of the undisclosed money was moved into Sharpe’s investment accounts. Almost $100,000 went to a car-leasing company, which Tourangeau believes was used to lease a 2013 Bentley GTC Mulliner and a 2018 Bentley Bentayaga for Sharpe’s use.

“We drive pick-up trucks, not Bentleys,” Kilgour said in his note to clients.

None of the allegations against Bridging or Sharpe has been proved in a court. Sharpe declined to comment.

As the volume of negative-yielding debt has surged and investors look to capitalize on the additional returns illiquid assets can provide, private debt has increasingly become more appealing to institutional investors and family offices. Retail wealthy investors, with the help of financial advisers, have also been increasingly parking cash in private debt -- now approaching a US$1 trillion market -- looking to boost returns.