At a hearing over the past couple of days, staff of the Ontario Securities Commission (OSC) asked the Capital Markets Tribunal to order $37.5 million in penalties, disgorgement and costs against the trio of former executives at failed alternative fund manager, Bridging Finance Inc.
Last fall, the regulatory tribunal found that the firm’s former CEO, David Sharpe, its co-founder and chief investment officer, Natasha Sharpe, and its former chief compliance officer, Andrew Mushore, committed multiple violations of securities law — including fraud (indirectly against Mushore), failing to properly manage conflicts of interest, and obstructing the regulator’s investigation.
David Sharpe refused to participate in the regulatory hearing, and has indicated that he intends to seek a judicial review of the tribunal’s findings, based on an alleged “abuse of process and violation of his Charter rights.”
At the panel’s sanctions hearing this week, the regulator asked for $4.3 million in penalties against David Sharpe, $3.3 million against Natasha Sharpe, and $500,000 against Mushore, along with proposed market bans. It also asked the tribunal to order $27.6 million in disgorgement jointly against the Sharpes. On costs, the OSC requested over $1.5 million against the Sharpes, and $300,000 against Mushore.
The OSC isn’t seeking any sanctions against Bridging itself, saying that any penalties ordered against the failed firm would only divert money from being returned to harmed investors.
While the regulatory proceeding focused on instances of alleged fraud at Bridging, based on the work of the court-ordered receiver to wind down the firm and recover funds for investors, it’s expected that investors in the Bridging funds will ultimately lose over $1 billion on the failure of the firm.
Earlier this month, the Ontario Superior Court of Justice authorized an initial distribution of $321 million to the firm’s 26,000 retail investors. It’s expected that investors will see further distributions as the receivership, and other litigation plays out.
In the tribunal’s sanctions hearing, lawyers for Natasha Sharpe and Mushore pushed back against the OSC’s requests, and argued for lesser sanctions.
Specifically, Sharpe’s lawyers argued that she shouldn’t face any monetary penalties, or if she does, at most, she should only be hit with a penalty of $280,000.
They also argued that she shouldn’t be jointly liable for the $27.6 million in disgorgement sought by the OSC, arguing that most of the ill-gotten gains should be attributed to David Sharpe. At most, they argued, she should only be required to disgorge the $750,000 that was directly generated by her misconduct.
Sharpe’s counsel also pushed back against the costs order sought by the OSC — which, they argued, was excessive and unwarranted. At most, they argued she should only be liable for $425,000 in costs.
In its filings, the OSC indicated that, in this case, it’s taking a new approach to seeking costs in enforcement proceedings — with a view to ensuring that securities law violators are bearing more of the true costs of enforcement, given that the commission is otherwise funded by compliant market participants.
Instead of calculating those costs based on the work of a single investigator and litigator, the costs sought in this case include the work of multiple forensic accountants, an investigator, and several lawyers.
Even so, the commission noted that the requested costs order represents a “significant” discount from the actual costs of the regulatory proceeding, given that the hourly rates attributed to OSC staff are far below market value.
The tribunal did not immediately issue a ruling on the sanctions being sought in the case. Instead, it reserved its decision, and said that it will deliver a decision as soon as it can.