Ernst & Young is facing a $1.4bn lawsuit over claims that it failed to detect fraudulent activities and misstatements leading to the downfall of Toronto-based private lender Bridging Finance, reported Bloomberg.
The legal action, initiated by the company’s receiver PricewaterhouseCoopers (PwC), was filed with Ontario’s Superior Court last month.
According to the claim, Ernst & Young provided unqualified opinions on Bridging’s financial statements from 2014 to 2020, despite apparent warning signs such as overvalued assets and concealed loan defaults.
Bridging, which managed more than $2bn at its height, specialised in high-risk loans to clients unable to secure funding from conventional banks.
PwC, appointed by the Ontario Securities Commission in 2021 to oversee Bridging due to concerns of investor fund misuse, alleges that the lender’s executives, David Sharpe and Natasha Sharpe, engaged in deceptive accounting practices.
These practices purportedly inflated the net asset value of the funds, leading to the collection of unwarranted fees.
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By GlobalDataThe Sharpe couple was adjudged by Ontario’s Capital Markets Tribunal, in what was said to be “one of the most grievous” cases, to have committed fraud and obstructed regulatory investigations, with David Sharpe receiving a permanent ban from the province’s capital markets last month.
The receiver’s lawsuit also accuses Ernst & Young of neglecting to properly scrutinise Bridging’s use of payment-in-kind loans and the misclassification of loan risks.
Ernst & Young is stated to have said: “At EY Canada, we take our role and responsibilities as auditors very seriously, and stand behind the quality and integrity of our historical work as auditor for Bridging Finance Inc.”
Ernst & Young added that it plans to address the allegations through the courts, Bloomberg reported.
PwC did not reply to requests for comment.
As of 31 October 2024, PwC has managed to recover approximately $698m, with an Ontario court authorising an initial distribution of $321m to unitholders in April 2025. The receiver estimates potential recoveries could reach around $880m.
The case, which has impacted more than 26,000 investors, was first reported by the Globe and Mail newspaper, Bloomberg reported.
