OSC’s case against Bridging execs gets the go-ahead

Ontario’s Capital Markets Tribunal declined to sideline an enforcement action against the husband and wife team that headed up failed fund manager Bridging Finance Inc., ruling that they failed to show they can’t get a fair hearing.

The Ontario Securities Commission (OSC) has alleged that David and Natasha Sharpe defrauded investors in the Bridging funds. According to court filings, it’s estimated that investors will lose over $1 billion due to the collapse of the firm.

The regulator’s allegations against the Sharpes have not been proven. The tribunal’s latest ruling in the case clears the way for the OSC to try and prove its allegations at a forthcoming enforcement proceeding.

Following a hearing on May 24, the tribunal dismissed motions from the Sharpes asking it to stay the regulator’s case. The Sharpes alleged that an abuse of process — namely, that the regulator disclosed compelled testimony from the Sharpes as part of filings to obtain a court order putting Bridging into receivership, without first seeking an order allowing the disclosure — will prevent them from getting a fair hearing.

“The Sharpes submit that it will be impossible for them to have a fair hearing in this enforcement proceeding against them, and that continuing this proceeding would bring the commission’s enforcement regime and the administration of justice into disrepute,” the tribunal noted.

The tribunal has previously ruled that the disclosure was improper, but it has declined to shut down the OSC’s enforcement case in response.

Now, the tribunal has issued its reasons for denying the Sharpes’ motions seeking a stay of proceedings.

In those reasons, it finds the public disclosure of the Sharpes’ compelled evidence won’t compromise their access to a fair hearing.

“The Sharpes will have ample opportunity at the hearing to test witnesses’ testimony, exploring whether and how they learned of the Sharpes’ compelled testimony and, if so, whether that knowledge improperly influenced their testimony in some way. Issues of credibility of this nature are routine in many hearings,” the tribunal said.

The panel also rejected their argument that even a fair hearing would offend society’s sense of justice, given the improper disclosure of evidence by the regulator.

Among other things, the tribunal concluded there’s no evidence of bad faith by OSC staff, and that the regulator’s error of disclosing the evidence without an order doesn’t amount to an act so egregious that going ahead with the enforcement hearing would bring the justice system into disrepute.

The tribunal cited several reasons for this conclusion, including the fact that the legislation has since been changed to allow the OSC to disclose evidence in receivership proceedings without first getting an order; and that the order required at the time likely would have been granted, since the tribunal has concluded in other hearings that “the public interest required the compelled testimony to be publicly available.”

Finally, the panel indicated the severity of the allegations against the Sharpes also favour continuing with the enforcement proceeding.

“They are alleged to have defrauded institutional and retail investors out of millions of dollars through their dishonesty and deceit. It is alleged that they funnelled investor funds to themselves and Bridging, then concealed their wrongdoing from investors. It is also alleged that the Sharpes obstructed the commission’s investigation and destroyed, concealed and altered Bridging’s records and in the case of David Sharpe, intimidated witnesses,” the panel noted.

“These are extremely grave allegations. If these allegations are true, there would be a great public interest in imposing significant sanctions, possibly including permanent removal from Ontario’s capital markets to protect investors. We conclude that in the circumstances of this case, the public interest in proceeding overrides the interests in favour of granting a stay,” the tribunal concluded.

The enforcement proceeding is scheduled to start June 26 and run until early February 2024.