Bridging Finance Inc., once a major private lender in Toronto, is now at the center of a massive legal storm. Its court-appointed receiver has filed a C$1.4 billion lawsuit against global audit giant Ernst & Young LLP (EY), claiming the firm failed in its duty to flag serious red flags.
According to documents filed in Ontario’s Superior Court, EY allegedly issued clean audit opinions on Bridging’s financial statements between 2014 and 2020—despite clear warning signs such as inflated asset values and hidden defaults. The lawsuit argues that these lapses played a key role in the eventual collapse of the lender, which once managed more than $2 billion in assets.
Hidden Risks and a Web of Deception
Bridging specialized in high-risk loans to borrowers typically rejected by traditional banks. But beneath the surface, troubling practices were allegedly rampant. PwC, now overseeing the firm’s assets, contends that Bridging’s top executives—husband-wife duo David and Natasha Sharpe—engaged in misleading accounting to inflate fund values and extract excessive fees.
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Ontario’s Capital Markets Tribunal found both guilty of fraud and regulatory obstruction, calling the case “one of the most grievous” ever presented. David Sharpe has been permanently banned from Ontario’s capital markets. Natasha Sharpe will still be allowed limited trading privileges if she meets court-ordered conditions.
More than 26,000 investors were affected by the scandal.
The Role of Auditors Under Scrutiny
The legal filing paints a troubling picture of EY’s audit practices. PwC alleges that EY failed to adequately investigate Bridging’s use of payment-in-kind loans—where interest was added to the principal instead of paid in cash—and ignored loan risk misclassifications. These practices distorted the company’s financial health, masking its eventual deterioration. EY, in response, stood by the integrity of its audit work and said it would defend itself through legal means.
“We take our responsibilities seriously,” the firm said in a statement, “and we’ll respond accordingly.”
Billions Lost, But Recovery Efforts Underway
Following its 2021 appointment by the Ontario Securities Commission (OSC), PwC began liquidating Bridging’s assets. As of October, PwC had recovered approximately $698 million, and in April, a court approved a $321 million initial payout to unitholders.
PwC estimates that total recovery could reach up to $880 million, though still far short of the funds originally under management. The lawsuit not only aims to assign accountability to EY but also to fill the gap left by what many see as a catastrophic audit failure.