PwC is suing Ernst & Young more than two years after the firm made a similar case against KPMG LLP, the accounting giant that was an auditor of other Bridging funds.Susana Vera/Reuters
The receiver for Bridging Finance Inc. is suing Ernst & Young LLP for failing to catch signs of fraud being perpetrated at the failed lender, despite serving as its auditor for several years.
Bridging receiver PricewaterhouseCoopers Inc. is seeking $1.4-billion in damages from EY for breach of contract, negligence and negligent misrepresentation, according to a statement of claim filed with the Ontario Superior Court on June 11.
Between 2014 and 2018, EY issued a total of 20 unqualified audit reports for Bridging and several of its funds. Unqualified audit reports are also known as clean reports, meaning any major issues discovered during the auditing process were resolved.
“EY was in a position to know that there were serious issues with the accounting controls and practices used by [Bridging] and its senior management,” the PwC statement of claim said. “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.”
David and Natasha Sharpe, who were respectively chief executive officer and chief investment officer of Bridging until the company was placed in receivership in 2021, were found guilty of fraud by the Ontario Capital Markets Tribunal in October, 2024, alongside Andrew Mushore, Bridging’s former chief compliance officer.
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Last month, the Sharpes were ordered to pay more than $27-million for defrauding their former company’s roughly 26,000 investors. The tribunal, an independent division of the Ontario Securities Commission (OSC), said in its penalty order that the misconduct “may be the most egregious” it has ever seen.
Bridging was once among Canada’s largest private lenders, managing more than $2-billion through funds that were available to every Canadian retail investor through the country’s largest banks and brokerage firms. The business model was focused on offering short-term loans – typically no longer than three years – to high-risk borrowers in exchange for very high interest payments (rates averaged 12 per cent across Bridging’s entire loan portfolio).
The Sharpes orchestrated a multimillion-dollar fraud against their own investors, a years-long OSC investigation determined, including by accepting kickback payments from one major borrower and authorizing a $40-million loan to another Bridging client before transferring the money to themselves.
“EY was intimately familiar with Bridging’s business and internal practices, including its internal controls (or lack thereof),” PwC alleged, adding the auditor “was in a position to know that there were serious issues with the accounting controls and practices.”
EY Canada spokesperson Dina Elshurafa said the auditor stands behind “the quality and integrity of our historical work as auditor for Bridging Finance.”
“We will vigorously respond to the allegations made in the statement of claim through the appropriate legal channels,” she said in an e-mail.
The lawsuit against EY is being launched more than two years after PwC made a similar case against KPMG LLP, as the accounting giant was also an auditor of other Bridging funds. KPMG submitted a statement of defence to that lawsuit in April, 2025, spokesperson Roula Meditskos said in an e-mail.
The firm “is confident that the evidence will demonstrate that the claim against KPMG is unfounded,” she said.
In its statement of defence, KPMG argued that EY was the auditor for the majority of Bridging funds as well as for Bridging itself. KPMG also said it was “consistently lied to” by Bridging management.
“KPMG never performed an audit of [Bridging], where much of the fraudulent conduct occurred,” the statement said. “KPMG cannot be held liable for audits conducted by EY.”
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Both lawsuits allege that Bridging’s auditors failed to properly assess the lender’s expected credit losses or adequately scrutinize its widespread use of “payment-in-kind” loans. PIK loans allow interest to be added to the principal rather than be paid in cash, which is also known as interest capitalization or “PIKing” interest, and are frequently used by private lenders.
“Loans that were PIKing interest were not supported by appropriately valued collateral, leaving the Bridging funds under-secured,” PwC said in its statement of claim against EY.
“It should have been readily apparent to EY in a number of the instances in which interest was being PIKed that the borrower was facing liquidity issues and that the purpose or effect of the amendments to the loan was to hide the fact that the loan was in default.”
In 2015, PwC claims, EY became aware that Bridging had a practice of PIKing interest for certain loans, but did not require Bridging to amend its financial statements to reveal that information. Instead, the statements indicated that all interest was received in cash.
“This was a material misstatement that EY was alerted to but failed to probe and resolve as required,” PwC said.
Bridging also extended credit on the basis of borrowers’ future business plans or cash-flow forecasts, PwC said, rather than tangible collateral. In other instances, the lawsuit alleges, Bridging accepted personal guarantees from borrowers on an unsecured basis but still characterized those loans as being secured.
“Had EY performed its audits in a competent manner, [Bridging] would have been unable to continue to operate in the ordinary course, thereby minimizing and/or avoiding further losses,” PwC said.
The gap in value between Bridging’s assets when it was placed in receivership and the amount owed to its investors and creditors was approximately $1.4-billion, PwC determined. Had EY not issued its unqualified audit reports, the lawsuit said, “this loss would not have occurred.”