KPMG Faces Allegations of Audit Failures in Private Credit Collapse
The Ontario Securities Commission (OSC) has leveled serious allegations against KPMG LLP, accusing the global audit firm of misrepresenting the quality of its audits for funds managed by the now-collapsed private lender Bridging Finance Inc. According to a filing made on Tuesday, the regulator claims that KPMG failed to properly value loans within the funds during the 2019 and 2020 fiscal years, actions that allegedly harmed investors by allowing inflated asset prices.
Regulator Details Audit Shortcomings
In its submission, the OSC asserted that KPMG falsely represented the audit work conducted for Bridging Finance, falling short by not consistently challenging and validating the audit evidence it gathered. The regulator highlighted that when KPMG identified loans that were overstated, it incorrectly assumed these issues were isolated, rather than investigating potential systemic problems. This alleged negligence contributed to the funds' collapse, with Bridging Finance ordered into receivership in 2021, just one month after KPMG issued its 2020 audit report.
KPMG's Response and Potential Penalties
KPMG has firmly denied the allegations. Spokesperson Roula Meditskos stated in a release, "KPMG takes its role and responsibilities as auditor seriously and remains committed to the highest standards of audit quality and professionalism. We stand behind our work as auditor of the Bridging funds." Despite this defense, the OSC is seeking an administrative penalty of up to $40 million—a maximum of $5 million for each audit report issued—among other remedies, underscoring the severity of the claims.
Background on Bridging Finance and Legal Actions
Bridging Finance, based in Toronto, managed over $2 billion in assets before its downfall. The collapse followed a wide-ranging investigation into the firm's activities, which revealed fraudulent practices by its leadership. In October 2024, Ontario's Capital Markets Tribunal ruled that David Sharpe and Natasha Sharpe, the husband-and-wife team running the firm, committed fraud, accepted kickbacks on loans, and attempted to obstruct regulatory investigations. They were fined and ordered to repay more than $20 million in June, with David Sharpe appealing the decision the following month.
Impact on Investors and Recovery Efforts
The OSC alleges that KPMG's actions had direct consequences for investors, who purchased units of the funds at inflated prices and made investment decisions based on inaccurate information. As of March 2025, the receiver PricewaterhouseCoopers Inc. had recovered approximately $317 million from the Bridging Funds, highlighting the ongoing financial fallout from the collapse. This case raises significant questions about audit integrity in the private credit sector and the regulatory oversight of financial practices in Canada.
