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A Toronto-based investment management firm with $2 billion in assets under management has been put into court-approved receivership while the Ontario Securities Commission conducts an investigation into questionable related-party transactions and movement of funds to personal bank accounts.

In an unusual twist, David Sharpe, the chief executive and one of the main operators of Bridging Finance Inc., which raises capital from investors to make loans to corporate borrowers in exchange for limited partnership units, is himself a former mutual fund regulator.

According to documents filed in court, enforcement staff of the Ontario Securities Commission “has uncovered evidence that BFI and certain members of its senior management team … appropriated amounts from the BFI Funds for personal gain … mismanaged the BFI Funds, including by failing to disclose material conflicts of interest … (and) breached numerous securities laws and regulations, including by misleading Enforcement Staff.”

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As a result, Canada’s largest capital markets regulator asked an Ontario court judge Friday to appoint receiver PriceWaterhouseCoopers Inc. “to safeguard the best interests of stakeholders, the reputation of Ontario’s capital markets, and the integrity of the ongoing investigation.”

The OSC says husband and wife Natasha and David Sharpe, who was director of investigations at the Mutual Fund Dealers Association between 2005 and 2009, are “the two most senior officers and decision-makers at the firm.”

She founded Bridging Finance, serves as executive chairman and is a minority shareholder. She was previously CEO and chief investment officer, according to the OSC.

The regulator’s investigation has focused on a series of transaction between 2017 and 2020, and potential conflicts of interest arising from the relationship between the firm, certain directors, officers and shareholders and the principals of some of the loan counterparties.

Among other things, the OSC alleges that, under Sharpe’s direction, “BFI misappropriated approximately $35 million from the BFI Funds to complete an acquisition for its own benefit.”

In addition, the documents filed in court allege David Sharpe received approximately $19.5 million in undisclosed payments in his personal chequing account from a company that was controlled by a person whose other firms BFI had loaned more than $100 million.

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The regulator termed the evidence uncovered so far as “significant and credible” in the document.

Daniel Tourangeau, lead investigator and a senior forensic accountant with the OSC, said in an affidavit filed in the Ontario Superior Court of Justice that the enforcement team found evidence that contradicted explanations given to them by Bridging Finance about the reasons for a buyout transaction, the source of various funds and use of funds to repay certain loans.

Tourangeau said he reviewed transactions involving David Sharpe’s chequing account and was “unable to ascertain a legitimate business purpose” for the undisclosed payments deposited there.

“Instead, it appears that D(avid) Sharpe used the undisclosed payments for his personal benefit or enjoyment” including transferring $11.7 million to investment accounts at BMO Nesbitt Burns and Richardson GMP, of which “at least $1.4 million appears to have been later transferred offshore,” Tourangeau said in the affidavit.

A further $228,000 went to vehicle expenses at Tesla Motors and Holand Leasing, “which I believe relates to the lease payments made in connection with the lease of a 2013 Bentley GTC Mulliner and a 2018 Bentley Bentayaga,” the forensic accountant said in the document.

Other funds were transferred to personal bank accounts and may have been used for construction or renovations and donations to educational institutions including Queen’s University, Tourangeau said in the affidavit.

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On the business, side, Tourangeau said OSC investigators were told by Sharpe and others at Bridging Finance that a company called Ninepoint sought to be bought out of a fund co-management arrangement with Bridging because Ninepoint was under financial pressure.

However, in an interview with investigators, John Wilson, co-CEO and chief investment officer at Ninepoint, “instead explained that BFI and Ninepoint entered into discussions to sever the co-management arrangement after Ninepoint threatened BFI with litigation over concerns it had with transactions” in the fund accounts.

According to Wilson, Tourangeau said in his affidavit, an operational review revealed that Bridging Finance had transferred $20 million from the Income Fund to fund a loan and then reversed the transaction. However, the $20 million that came back into the Income Fund came from accounts related to other BFI Funds rather than the law firm trust account that initially received the money.

“This concerned Ninepoint” and Wilson and others at Ninepoint questioned Sharpe and others about it.

“After a back and forth, Ninepoint threatened BFI with litigation and BFI offered to purchase the Management Interest” from Ninepoint, Tourangeau said in the affidavit, adding that no one at Bridging Finance interviewed during the investigation mentioned the dispute with Ninepoint.