Bridging founders have no case for ‘abuse of process’ by OSC staff, panel finds

The co-founders of failed fund manager Bridging Finance Inc. don’t have a viable case for “abuse of process” by the Ontario Securities Commission’s (OSC) staff, according to the Capital Markets Tribunal.

On Tuesday, the tribunal dismissed motions from David and Natasha Sharpe, Bridging’s former CEO and chief investment officer, respectively, that sought disclosure of certain documents for use in a forthcoming hearing (scheduled for May 23) seeking a stay of the proceedings against them.

The panel said it denied the motions seeking disclosure on the basis that the Sharpes “failed to establish a tenable case” for their motions.

“A party seeking further disclosure is required to first lay a foundation to establish [that] the materials sought might be relevant,” the tribunal said, noting that requests for disclosure can’t be used to drag out cases or enable “fishing expeditions.”

Among other things, the motion sought access to communications between OSC staff and Bridging’s receiver, PricewaterhouseCoopers; internal communications between OSC staff, executives and tribunal members regarding the appointment of the receiver; and communications between OSC staff and witnesses.

The tribunal also said the Sharpes failed to establish a case for “abuse of process” by OSC staff.

“A stay of proceedings for an abuse of process is an extraordinary remedy that is available only in ‘the clearest of cases,'” the tribunal stated.

The motions had alleged that OSC staff committed abuse of process when they included testimony compelled from the Sharpes in a court filing seeking a receiver for the company without first obtaining an order explicitly permitting that disclosure.

Previously, the tribunal had ruled that OSC staff breached the Securities Act when they disclosed the compelled testimony.

However, the panel ruled Tuesday that the disclosure nonetheless did not support a “tenable case” of abuse of process.

For one, the tribunal found that the alleged abuse of process occurred in the receivership proceeding, not as part of the OSC’s enforcement case.

The motions “have not identified any act done in this proceeding that can be reasonably argued to constitute an abuse of process,” the tribunal said, adding that securities legislation has since been amended to explicitly allow the regulator to disclose compelled testimony in court proceedings.

“In other words, the very act that gives rise to the Sharpes’ concern is now expressly permitted,” the tribunal said. “While the amendment does not have retroactive effect, the legislature’s expression of what is permissible undermines the Sharpes’ submission today that what the commission did would violate the community’s sense of fair play.”

The tribunal also rejected the idea that disclosure of the compelled testimony, which could taint the evidence of witnesses in the enforcement case, represented an abuse of process.

“The fact that witnesses know what the [Sharpes] said in their compelled testimony may well raise issues of witnesses’ credibility in the tribunal enforcement proceeding but cannot be reasonably argued to constitute an abuse of process,” the panel said.

The panel also dismissed the argument that the documents being sought could reveal evidence of intentional wrongdoing by OSC staff.

“The [Sharpes] seek to place the onus on OSC staff to establish it did not act in bad faith. However, the onus is on them to first lay a foundation, rooted in the evidence, showing that the requested material might be relevant,” the tribunal said in its decision.

“Their frank concessions show they currently are unable to lay the necessary foundation and leave no doubt that their motions for further disclosure to support their stay motions must fail.”