Motion: In the Matter of Bridging Finance Inc. et al.

Motion
Download PDF

File No.: 2021-15

IN THE MATTER OF

BRIDGING FINANCE INC., DAVID SHARPE, BRIDGING INCOME FUND LP, BRIDGING MID- MARKET DEBT FUND LP, BRIDGING INCOME RSP FUND, BRIDGING MID-MARKET DEBT RSP FUND, BRIDGING PRIVATE DEBT INSTITUTIONAL LP, BRIDGING REAL ESTATE LENDING FUND LP, BRIDGING SMA 1 LP, BRIDGING INFRASTRUCTURE FUND LP, AND BRIDGING INDIGENOUS IMPACT FUND

MOTION

(For Extension of a Temporary Order Under Subsection 127(1) of the Securities Act, RSO 1990 c S.5)

 

A. ORDER SOUGHT

The moving party, the Ontario Securities Commission (the Commission), requests that the Capital Markets Tribunal (the Tribunal) make the following orders:

  1. An order pursuant to subsections 127(8), 127(2) and paragraph 2 of subsection 127(1) of the Securities Act, RSO 1990 c S.5 (the Act) that, until September 30, 2022, all trading in securities of Bridging Income Fund LP, Bridging Mid-Market Debt Fund LP, Bridging Income RSP Fund, Bridging Mid-Market Debt RSP Fund, Bridging Private Debt Institutional LP, Bridging Real Estate Lending Fund LP, Bridging SMA 1 LP, Bridging Infrastructure Fund LP, and Bridging Indigenous Impact Fund (collectively, the BFI Funds)  shall cease, except that PricewaterhouseCoopers Inc. (PwC or the Receiver) in its capacity as receiver and manager, without security, of all the assets, undertakings and properties of Bridging Finance Inc. (BFI) and the BFI Funds may trade in or facilitate the issuance or redemption of units of a BFI Fund with prior approval of the Ontario Superior Court of Justice (the Court);
  2. If necessary, an order abridging the time required for service and filing of the Commission’s motion record pursuant to Rules 3 and 4(2) of the Capital Market Tribunal Rules of Procedure and Forms (the Rules);
  3. An order that this motion be heard in writing pursuant to Rule 23(3); and
  4. Such other order as the Tribunal considers appropriate in the public interest.

B. GROUNDS

The grounds for the request are:

The Investigation
  1. An investigation was conducted into, inter alia, BFI and David Sharpe  (Sharpe);
  2. During the course of the investigation, evidence was found that (i) BFI had  appropriated $35 million from investment vehicles under its control, including the BFI Funds, which raise funds from external investors, in order to complete an acquisition for its   own benefit, (ii) Sharpe received approximately $19.5 million in undisclosed payments into his personal chequing account from a company owned and controlled by an individual during  the same period that BFI loaned over $100 million to other companies connected to the same individual, (iii) during the period that a different individual was negotiating to purchase half of BFI, BFI loaned companies owned by that individual almost $100 million,  including $32 million two weeks before the acquisition closed, and (iv) it appears that BFI did not make complete or timely disclosure of the above to investors in the BFI Funds;
  3. On March 31, 2022, the Tribunal issued a Notice of Hearing commencing proceeding no. 2022-9 (the Enforcement Proceeding) against BFI and others. The allegations made against BFI include;
    1. that it and certain of its directors and officers engaged in or participated in acts, practices or courses of conduct relating to securities which they knew or reasonably ought to have known perpetrated a fraud on unitholders in the BFI Funds contrary to section 126.1(1)(b) of the Act;
    2. that it and certain of its directors and officers made statements in material, evidence and/or information submitted to the Commission that, in a material respect and at the time and in light of the circumstances under which the statements were made, were misleading or untrue, or did not state a fact that was required to be stated or that was necessary to make the statements not misleading, contrary to clause 122(1)(a) of the Act; and
    3. that it and certain of its directors and officers failed to take reasonable steps to identify and respond to material conflicts of interest, contrary to subsections 13.4(1), (2) and (3) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and contrary to clause 32(1)(g) of the Act.
The Temporary Order and the Extensions
  1. On April 30, 2021, the Tribunal issued a temporary order (the Temporary Order);
  2. The Temporary Order provided that:
    1. all trading in securities of the BFI Funds shall cease;
    2. Sharpe’s registration as the ultimate designated person (UDP) of BFI is suspended; and
    3. the Temporary Order shall take effect immediately and expire on the 15th day after its making unless extended by order of the Tribunal;
  3. On May 12, 2021, the Tribunal issued an order (the May 12 Order) that, pursuant to subsection 127(8) and paragraph 2 of subsection 127(1) of the Act, until August  12, 2021, all trading in securities of the BFI Funds shall cease;
  4. No application was made to extend the suspension of Sharpe’s registration as UDP of BFI in connection with the May 12 Order;
  5. On August 10, 2021, the Tribunal issued an order that, pursuant to subsections 127(8), 127(2) and paragraph 2 of subsection 127(1) of the Act, until December 31, 2021, all trading in securities of the BFI Funds shall cease, except that PwC, in its capacity as receiver and manager, without security, of all the assets, undertakings and properties of BFI and the BFI Funds, may trade in or facilitate the issuance or redemption of units of a BFI Fund with prior approval of the Court;
  6. On December 22, 2021, the Tribunal issued an order that, pursuant to subsections 127(8), 127(2) and paragraph 2 of subsection 127(1) of the Act, until March 31, 2022, all trading in securities of the BFI Funds shall cease, except that PwC, in its capacity as receiver and manager, without security, of all the assets, undertakings and properties of BFI and the BFI Funds, may trade in or facilitate the issuance or redemption of units of a BFI Fund with prior approval of the Court;
  7. On March 21, 2022, the Tribunal issued an order that, pursuant to subsections 127(8), 127(2) and paragraph 2 of subsection 127(1) of the Act, until June 30, 2022, all trading in securities of the BFI Funds shall cease, except that PwC, in its capacity as receiver and manager, without security, of all the assets, undertakings and properties of BFI and the BFI Funds, may trade in or facilitate the issuance or redemption of units of a BFI Fund with prior approval of the Court.
The Receivership
  1. On application by the Commission, the Court issued an order dated April 30, 2021 (the Appointment Order) appointing PwC as receiver and manager, without security, of all the assets, undertakings and properties of BFI and the BFI Funds (the Receivership Proceeding);
  2. On May 3, 2021 the Court issued an order (the Additional Appointment Order) appointing PwC as receiver and manager, without security, of all the assets, undertakings and properties of certain other entities connected to BFI;
  3. On May 14, 2021 the Court issued an order (the Continuation Order) continuing PwC’s appointment as Receiver under the Appointment Order and the Additional Appointment Order until further order of the Court;
  4. In its Tenth Report to the Court (the Tenth Report), dated February 18, 2022, filed previously in this proceeding, the Receiver described, beginning at or around paragraph 123, how the timing of a distribution to BFI unitholders is subject to the prior determination of certain issues that may affect the rights of certain BFI unitholders (the Potential Unitholder Claims);
  5. The Receiver’s Eleventh Report to the Court (the Eleventh Report), dated April 12, 2022, describes the Receiver’s intended process for the Court to address the Potential Unitholder Claims, including a process for representative counsel to be appointed for certain groups of unitholders;
  6. On May 26, 2022, the Court issued an Order appointing three law firms as representative counsel for three groups of unitholders having Potential Unitholder Claims;
  7. A motion before the Court to address the Potential Unitholder Claims has not yet been scheduled; and
  8. Based on the above, it is expected to be some time before the Receiver is in a position to make a distribution to BFI unitholders. Accordingly, the Commission requests that the order included in draft form in the moving party’s motion record be effective until September 30, 2022;
Ongoing Proceedings and Consent
  1. The Enforcement Proceeding and the Receivership Proceeding are ongoing;
  2. The order sought is necessary to protect investors and is in the public interest;
  3. PwC, in its capacity as Receiver of BFI and the BFI Funds, consents to the relief sought;
  4. Given the consent of the Receiver, it would be just and expeditious to conduct this motion in writing. An oral hearing of this motion would needlessly consume Tribunal resources;
  5. Subsections 127(1), 127(2) and 127(8) of the Act;
  6. Rules 3, 4(2), 23(3) and 28 of the Rules; and
  7. Such further grounds as counsel may advise and the Tribunal may permit.

C. EVIDENCE

The moving party intends to rely on the following evidence for the motion:

  1. The materials filed with the Tribunal previously in connection with this proceeding;
  2. The consent of the Receiver;
  3. The affidavit of Chandra Miles dated June 27, 2022; and
  4. Such further evidence as counsel may advise and the Tribunal may permit.

Date: June 27, 2022

ONTARIO SECURITIES COMMISSION

Mark Bailey
Enforcement Branch LSO No. 38096I
Tel: 416-593-8245
Email: mbailey@osc.gov.on.ca

Adam Gotfried
Enforcement Branch LSO No. 64077K
Tel: 416-263-7680
Email: agotfried@osc.gov.on.ca