Retail investors need a voice in Bridging Finance case, lawyers argue

Lawyers representing an ad hoc group of investors in Bridging Finance Inc. (BFI) funds say retail investors’ interests need to be represented in BFI’s receivership process.

At a virtual hearing on Wednesday, Toronto-based law firm Weisz Fell Kour LLP (WFK) brought a motion seeking to be appointed as representative counsel for all retail investors — excluding investment advisors and institutional investors — in BFI funds during BFI’s receivership.

In May, an Ontario court appointed a receiver, PricewaterhouseCoopers Inc. (PwC), to take over the affairs of BFI amid an ongoing investigation by the Ontario Securities Commission.

Lawyers for PwC also appeared at Wednesday’s hearing and made a number of requests, including that advisory committees be appointed to provide PwC with investor input during the receivership process.

But WFK argued that the advisory committees proposed by PwC — which would include advisors and institutional investors — don’t have a clear role and wouldn’t represent the interests of ordinary investors.

“This proceeding is rolling on without meaningful input from the retail investors, the stakeholders, who it is now clear, are most at risk and who as a practical matter are not well able to protect themselves,” a submission from WFK said.

WFK suggested that appointing committees that include investment advisors could undermine retail investors’ confidence in the process.

“It is logical that these recent events would cause retail investors to wonder about the quality of the advice they received to invest in the Bridging funds, and not to see the investment advisors as well positioned to represent their interests,” WFK said in its filing. “The retail investors require representation by counsel whose sole focus and loyalty is to them.”

WFK said this is necessary to ensure the appearance of justice in BFI’s receivership process.

“It is particularly important in high profile legal proceedings such as this, that justice must not only be done but must be seen to be done,” WFK said. “The retail investors’ faith in this process and their willingness to accept any outcome resulting from this process, is dependent on their belief that the process is fair.”

At the hearing, lawyers for PwC defended the proposed appointment of the advisory committees, and made a number of requests, including that PwC be allowed to make certain payments and that the limitation period on potential civil claims against BFI be paused.

PwC’s lawyers also indicated that the financial condition of the BFI funds remains uncertain, given some unexplained transactions they described as “very troubling.”

While one of the central figures in BFI’s dealings, Sean McCoshan, has been “too ill” to answer PwC’s questions about these transactions, medical proof of his condition has not been provided, lawyers for PwC said.

PwC’s priority is to recover as much money as possible for all investors, the lawyers said — a process that could include selling portfolio assets, which would be subject to court approval.

Chief Justice Geoffrey Morawetz of the Ontario Superior Court of Justice indicated that he intends to rule on the issues covered at Wednesday’s hearing in the next few days — hopefully by Friday, possibly by Monday.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.