Ontario’s Capital Markets Tribunal ordered over $27 million in monetary sanctions — disgorgement, penalties and costs — along with market bans, against the trio of executives at failed alternative fund manager, Bridging Finance Inc., after finding that they engaged in fraud that harmed fund investors.
Last October, the tribunal ruled that the husband and wife team that founded and ran Bridging, David and Natasha Sharpe, breached securities rules and participated in three securities-related frauds; that the firm’s chief compliance officer, Andrew Mushore, participated in one of those frauds; and, that all three obstructed the Ontario Securities Commission’s (OSC) investigation into the firm.
David Sharpe never participated in the regulatory proceedings, and has pledged to appeal the tribunal’s findings against him.
Now, the Capital Markets Tribunal has issued sanctions for the regulatory violations that it found were proven by the OSC. Specifically, it ordered that David Sharpe disgorge over $18 million, that David and Natasha jointly disgorge another $2 million, and that Natasha alone is required to disgorge $750,000 — representing the proceeds of their misconduct.
The tribunal also imposed an overall penalty of $3.6 million on David Sharpe, $1.95 million on Natasha, and $50,000 on Mushore. In addition, it ordered $1.2 million in costs against David and Natasha Sharpe. Finally, the panel permanently banned the Sharpes from the capital markets, and imposed a 10-year ban on Mushore.
While the OSC was largely successful in its arguments for sanctions in the case, the tribunal didn’t order the full amounts of the sanctions it sought in each aspect of the case.
The penalties and disgorgement orders were specifically apportioned across the three alleged frauds — a $20-million kickback scheme in exchange for hundreds of millions of dollars in loans from the Bridging funds to various entities associated with businessman Sean McCoshen; using $40 million from the Bridging funds to buy out a management interest from Ninepoint Partners LP; and a scheme to loan millions from the funds to former industry executive Gary Ng, so that he could purchase half of Bridging’s shares from existing shareholders.
Additionally, the Sharpes were hit with penalties for obstructing the OSC’s investigation — including a $1-million penalty against David Sharpe for ordering the deletion of thousands of company emails, and $500,000 for making false statements to the regulator. Natasha Sharpe was also fined $200,000 for making false statements and $50,000 for allowing David Sharpe to listen in on her examination by commission investigators.
‘Brazen’ misconduct
On the allegations of obstruction, the panel said, “David’s misconduct was brazen, extensive, deliberate and recurrent. He ignored both Bridging’s and his own responsibilities… Worse, he used his power to co-opt others into deceiving the commission. David’s misconduct may be the most egregious the tribunal has ever encountered.”
The tribunal was similarly harsh in its reasons when it came to setting penalties for the various fraud schemes, saying, “David’s conduct was egregious, and among the most serious frauds to come before the tribunal, for several reasons.” It cited the amount of money involved, the losses suffered by investors, and Sharpe’s background in the industry, which included 20 years experience in various legal and compliance roles, and as a regulator at the Mutual Fund Dealers Association of Canada (MFDA).
“David’s background makes his conduct particularly galling. His experience could only have served to amplify his apparent trustworthiness and to help Bridging attract investors. His misconduct was a fundamental betrayal of that trust and was an abuse of the investors,” the panel said.
It also found that Natasha Sharpe’s industry experience and her senior position at Bridging (as chief investment officer) represented aggravating factors in the case.
“Like David, her experience and position amplified her apparent trustworthiness and helped Bridging attract investors. Her misconduct betrayed that trust,” it said.
When it came to Mushore, however, the panel was more forgiving, saying that while “Mushore must be accountable for his choices … his inexperience, his unusual vulnerability to manipulation, and the Sharpes’ exploitation of that vulnerability, are significant mitigating factors.”
Additionally, it found that “Mushore’s extensive co-operation with the commission’s investigation and with the receiver, and his candour before us, to be significant mitigating factors. The commission relied extensively on his testimony. The sanctions we impose should recognize and encourage such co-operation.”
As a result, the sanctions it ordered against Mushore in particular were much lower than the regulator sought — while the OSC asked for a permanent ban and a $500,000 penalty against him, the tribunal only imposed a $50,000 penalty and a 10-year ban.
“Given Mushore’s co-operation, his limited role, David’s manipulation of him, and little need for specific deterrence, it is in the public interest to impose an administrative penalty significantly less than that requested by the commission,” the tribunal said in its decision.
The OSC didn’t seek any sanctions against Bridging itself, since any monetary sanctions against the firm could reduce the recovery to investors through the receivership process. Bridging was placed into receivership at the request request of the OSC in April 2021.
And, while the enforcement case focused on the three alleged frauds that cost the firm’s investors, the expected losses to investors far exceed the amounts involved in those frauds, and are expected to top $1 billion.