This article appears in the April 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

With investors facing more than $1 billion in losses from the collapse of asset manager Bridging Finance Inc., the Street has some explaining to do.

The Bridging saga began just over a year ago, when the Ontario Securities Commission (OSC) asked an Ontario court to appoint a receiver for the firm amid concerns about alleged undisclosed conflicts of interest involving the firm, its executives, its funds and several borrowers.

At the time, the firm was managing about $2.1 billion for 26,000 investors in various private debt funds. Since then, investigations by the court-appointed receiver, PricewaterhouseCoopers LLP (PwC), have concluded that most investor money is gone.

Investors are expected to recover, on average, between 34¢ and 42¢ on the dollar from the firm’s liquidation.

Over the past eight months, PwC tried to find a buyer or an investor for Bridging and its assets. After numerous bargain hunters had poked around its books and only unsatisfactory bids emerged, a majority of investors decided they would be better off if the firm is simply liquidated — leaving PwC to recover what it can on the funds’ outstanding loans and returning the recouped money to investors.

Now, the OSC has alleged that the losses investors face are, at least partly, the result of fraudulent dealings by several of Bridging’s former top executives. Those allegations have not been proven, and will surely be vigorously contested.

The receiver’s investigations attributed the losses to mismanagement stemming from several factors, including alleged reckless underwriting practices, inadequate risk management and governance failures.

Regardless, the Street has many questions to answer. The main one: How did the industry’s gatekeepers fail once again? While Bridging was a marginal player, its collapse strikes at the heart of Bay Street — mainstream investment dealers and major legal and accounting firms all worked with Bridging, and yet none raised any red flags.

Where was the due diligence from the brokerage firms and financial advisors who put their retail clients into Bridging’s funds in the first place? Where were the auditors? And where were the regulators?

Investors now face massive losses due to their dealings with an industry that purports to be built on trust. To preserve that trust, Bay Street cannot allow this failure to become an orphan.