Court rejects law firm’s request to represent retail investors in Bridging Finance case

An Ontario court ruled that it’s premature to appoint counsel to represent retail investors in the Bridging Finance Inc. (BFI) case, but the investor advisory groups proposed by PricewaterhouseCoopers Inc. (PwC), BFI’s receiver, have been given the go-ahead.

Chief Justice Geoffrey Morawetz of Ontario’s Superior Court of Justice denied a motion from Weisz, Fell, Kour LLP (WFK) asking the court to appoint WFK as representative counsel to defend the interests of retail investors in the BFI case.

At a hearing last week, WFK, acting on behalf of an “ad hoc group of retail investors” who lost money through BFI, argued that retail investors need counsel that is solely focused on defending their interests.

However, Morawetz ruled that the appointment of counsel for retail investors should be deferred for now, given that PwC has not yet been able to give a proper accounting of the BFI funds’ portfolios.

BFI was petitioned into receivership amid an investigation by the Ontario Securities Commission, which alleges it uncovered undisclosed conflicts of interest at BFI.

Inquiries by PwC have also found questionable transactions at BFI and evidence of a mass effort to delete emails. Additionally, one of the central figures in the disputed transactions, Sean McCoshen, has yet to answer PwC’s questions, citing unconfirmed medical reasons.

Given the circumstances, PwC has been unable to provide an accurate accounting of the BFI funds’ assets. Meanwhile, investors who are concerned about accessing their money have called for the BFI funds and/or the firm to be sold quickly so they can recover some assets.

But for now, the court has ruled that PwC should have more time to determine the funds’ financial condition before lawyers are appointed.

“The focus at the present time should be on the portfolio review and developing a strategy to maximize value for all stakeholders,” Morawetz wrote in his decision.

A proper accounting of the various funds’ assets will clarify where investors’ interests lie, the ruling suggested.

“It could very well be that the entitlement or potential entitlement of unitholders in the various funds will differ, which could in turn require the appointment of different representative counsel for different funds,” Morawetz said.

Morawetz dismissed WFK’s request with leave to review the issue in 60 days. In the meantime, he endorsed the appointment of two Limited Partner Advisory Committees (LPACs) sought by PwC.

WFK opposed the LPACs, citing concerns about institutional investors’ and investment advisors’ involvement in those committees.

However, the court ruled the committees can be appointed, but only for a limited time. They will provide input to PwC for 60 days, which could be extended by a further court order if necessary.

“It is my expectation that at the end of 60 days, the receiver should be in a position to report to the court on the portfolio review and also to provide information with respect to the reconciliation of inter-fund accounts,” the decision said.

The court also granted a variety of other approvals sought by PwC, including tolling the limitation period on potential civil claims for misrepresentation, repayment requests and a proposed employee retention plan.