KPMG Canada hit with $1.4-billion lawsuit over Bridging Finance collapse

PwC Canada, the receiver for Bridging Finance, is suing KPMG Canada for $1.4 billion over alleged deficiencies in the firm’s auditing of the private debt manager, which collapsed in 2021.

The lawsuit filed with the Ontario Superior Court alleges KPMG negligently failed to detect and report on Bridging’s misrepresentation of its financial performance and the value of its assets.

The private lender was placed under PwC’s control in April 2021 by an Ontario court, with the accountancy ultimately deciding to wind down Bridging and repay investors as loans matured. Unfortunately, an estimated $1.4 billion of the firm’s $2.09 billion in assets under management have disappeared.

PwC thinks its Big Four rival is liable for the liquidation deficit. The lawsuit is seeking damages for breach of contract, negligence, and negligent misrepresentation.

According to court documents viewed by The Globe and Mail, PwC’s lawsuit focuses on two allegations: that KPMG’s assessments of expected credit losses were deficient, and KPMG was too lenient on how many loans could defer cash interest payments.

KPMG began auditing Bridging’s largest fund – the Sprott Bridging Income Fund – in 2016, and by 2019 was auditing all of Bridging’s funds.

“KPMG is not responsible for any losses that may have been caused by the decisions and actions, including any alleged fraudulent actions, of Bridging management and others. We will vigorously defend our work throughout the legal proceedings,” KPMG told the Globe in a statement.

KPMG’s Big Four peers in Canada have in the past decade all settled lawsuits pertaining to alleged audit deficiencies. EY in 2013 paid $117 million to settle claims over its audit of Sino-Forest Corp.; PwC in 2015 paid $240 million to settle claims over its audit of Castor Holdings, a Montreal real estate lender; and Deloitte in 2017 paid $122 million to settle a lawsuit over its audit of Philip Services Corp., a Hamilton recycling firm.