Bridging Finance receiver PwC sues former auditor EY for $1.4 billion
PwC, the court-appointed receiver of Bridging Finance, is suing fellow Big Four firm EY for $1.4 billion for claimed lapses in its accounting work for the failed Toronto-based private lender.
In a claim filed on June 11 with the Ontario Superior Court, PwC alleges EY failed to uncover fraud and misstatements that led to Bridging Finance’s collapse.
PwC, as receiver for Bridging Finance, is seeking $1.4 billion in damages from EY for breach of contract, negligence, and negligent misrepresentation.
PwC says that between 2014 and 2018, EY filed 20 unqualified – or clean – reports for Bridging and several of its funds.
“Had EY carried out its audits to the standard required of it, it would never have issued the unqualified audit reports and, consequently, the losses [Bridging] and its funds suffered would have been avoided,” PwC said in the statement of claim.
The gap in value between Bridging’s assets when its was placed in receivership in 2021 and the amount owed to investors and creditors was about $1.4 billion.
As receiver, PwC has recovered approximately $698 million as of October 31, and expects to recover as much as $880 million from the funds.
EY said in statement that it stands by the “quality and integrity” of its audit work for Bridging, and that it will “vigorously respond” to the allegations via legal channels.
David and Natasha Sharpe, respectively CEO and chief investment officer of Bridging until its placement into receivership in 2021, were found guilty of fraud by the Ontario Capital Markets Tribunal in October 2024. They were ordered to pay over $27 million for defrauding their former company’s 26,000 investors and David Sharpe was permanently banned from working or trading in capital markets in Ontario.
Bridging was one of Canada’s largest private lenders, managing over $2 billion at its height. The company’s business model relied on offering short-term loans to high-risk borrowers for very high interest.
Bridging used payment-in-kind (PIK) loans that allow interest to be added to the principal rather than be paid in cash. PwC claims those PIK loans were not supported by appropriately valued collateral, and were thus under-secured.
PwC alleges EY became aware of Bridging PIKing interest on certain loans, but did not make Bridging amend financial statements that indicated all interest was paid in cash.
PwC’s lawsuit against EY arrives over two years after it launched a similar case against KPMG, which was the auditor of other Bridging funds. KPMG in its statement of defence said that EY was the auditor for the majority of funds as well as for Bridging itself, and that KPMG was consistently lied to by Bridging’s leaders.
