Court rejects Bridging execs’ appeal

An Ontario court has rejected an appeal of the Capital Markets Tribunal’s decisions against the co-founders of failed fund manager, Bridging Finance Inc., who sought to stay the Ontario Securities Commission’s (OSC) enforcement case against them based on the regulator’s improper disclosure of compelled evidence. 

Last June, the tribunal ordered sanctions against Bridging’s founders, David and Natasha Sharpe, after finding that they perpetrated frauds in connection with three sets of transactions at the firm. However, their appeal to the Divisional Court focused on several preliminary rulings by the tribunal before the enforcement case was even heard.

Ahead of the enforcement hearings, the Sharpes sought a stay of the OSC’s proceedings against them, alleging abuse of process by the regulator.

Among other things, they asked the tribunal to revoke the OSC’s investigation order against them, and later sought a stay of the proceedings — arguing that the OSC improperly disclosed compelled testimony in court filings seeking a receiver for Bridging.

While the tribunal concluded that the OSC’s disclosure of compelled evidence was improper, it declined to stay the OSC’s case on that basis. It also declined to order additional disclosure from the OSC that was sought by the Sharpes — including internal and external communications by the regulator — that they hoped would bolster their argument for a stay. 

In the judicial review, the Sharpes asked the court to stay the regulator’s proceedings, including the sanctions it imposed against them, based on the improper disclosure by the OSC — alleging, among other things, that the tribunal erred by not staying the OSC’s proceedings against them as an abuse of process.

“They submit that the unauthorized disclosure here is shocking and should be condemned by labelling it an abuse of process,” the court noted in its decision. “They further submit that bad faith of commission staff should be implied, that they have been prejudiced, and that there is no alternative remedy to address the prejudice.”  

Additionally, they argued, “there must be a stay ‘to punish’ the commission in the public interest and maintain the integrity of the disciplinary process.”

However, the court disagreed.

“With respect to the legal test for a stay, the appellants have not pointed to a legal error in the applicable principles set out in the stay decision. Those principles are amply supported by the relevant authorities,” the court noted.

It also said that the tribunal concluded that the public interest in going ahead with an enforcement proceeding that included serious allegations of wrongdoing outweighed the benefits of granting a stay.

“I see no appealable error in this reasoning, which strongly supported the denial of a stay,” the court said in rejecting the appeal.   

The Divisional Court also considered an appeal of one aspect of the sanctions decision — the $2 million in disgorgement ordered against Natasha Sharpe by the tribunal, which found that she benefited from kickbacks that were allegedly received by her husband because the money was deposited in their joint bank account.

She challenged that order on several grounds, including arguing that the OSC can’t seek disgorgement because of its prior unlawful disclosure, and that disgorgement is only appropriate if she benefitted from the ill-gotten gains.

Again, the court rejected the appeal. 

“This is a challenge to findings of fact, without showing palpable and overriding error,” the court said.

However, it did find that the amount of disgorgement ordered was slightly off.

“On this point alone, Natasha correctly submits that the tribunal’s finding of fact was $1.965 million,” the court said — adding that the number shouldn’t have been rounded up to $2 million. 

“There are no reasons that explain the higher figure,” the court said. “This correction should be made.” 

Apart from that tweak though, the court said that there was no “appealable error in the tribunal’s sanction requiring that [Natasha] disgorge the ill-gotten gains that went into the joint bank account, jointly and severally with David.”