Ernst & Young is facing a $1.4 billion lawsuit based on allegations that it failed to detect fraudulent activities and misstatements leading to the downfall of Toronto-based private lender Bridging Finance. The legal action, initiated by the lender's receiver, PricewaterhouseCoopers (PwC), was filed with Ontario's Superior Court.
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 $2 billion at its height, specialized 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 because of 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. The 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 scrutinize Bridging's use of payment-in-kind loans and the misclassification of loan risks. As of the end of October 2024, PwC has managed to recover approximately $698 million, with an Ontario court authorizing an initial distribution of $321 million to unitholders in April 2025. The receiver estimates potential recoveries could reach around $880 million. "Ernst & Young faces $1.4bn Bridging Finance lawsuit" www.internationalaccountingbulletin.com. (Jul. 09, 2025).
Commentary
Compliance with the 2014 Code of Professional Conduct of the American Institute of Certified Public Accountants, which is current through March 2025, will likely be an issue. One such rule might be Rule 1.130, which addresses Preparing and Reporting Information.
Rule 1.130.010, Knowing Misrepresentations in the Preparation of Financial Statements or Records, states:
.01 Threats to compliance with the "Integrity and Objectivity Rule" [Rule 1.100.001] would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards and the member would be considered to have knowingly misrepresented facts in violation of the "Integrity and Objectivity Rule," if the member
- makes, or permits or directs another to make, materially false and misleading entries in an entity's financial statements or records;
- fails to correct an entity's financial statements or records that are materially false and misleading when the member has the authority to record the entries; or
- signs, or permits or directs another to sign, a document containing materially false and misleading information.
Although this issue is one of many that may arise in this suit, accounting professionals will always strive to stay abreast of recent changes in the codes that apply to them.
