OSC Alleges KPMG Botched Audits for Collapsed Lender Bridging Finance

The Ontario Securities Commission alleges KPMG breached securities law eight times across four Bridging Finance fund audits, exposed the firm to up to $40 million in penalties, and helped give more than 26,000 investors a false sense of confidence in a lender whose collapse would ultimately wipe out an estimated $1.3 billion of their money.

In an enforcement filing dated March 31, the regulator charged that KPMG's audits of four Bridging funds for fiscal years 2019 and 2020 were not conducted in accordance with Canadian generally accepted auditing standards, despite KPMG's own reports stating otherwise. Each of the eight auditor's reports issued across those two years constitutes a separate alleged breach of Ontario's Securities Act.

The core failure, according to the OSC, was loan valuation. Bridging Finance specialized in short-term, high-interest loans to businesses considered too risky for conventional banks, and managed roughly $2.09 billion in assets at its peak. The OSC alleges KPMG "failed to perform sufficient and appropriate audit procedures over the most critical aspect of the financial statements," specifically the valuation of the loans held within the funds. When KPMG found loans that were overstated, it wrongly assumed the findings were isolated to those loans. The regulator also alleges KPMG was aware a borrower had breached its loan agreement and yet did not make Bridging management label the loan as impaired.

The pattern the OSC describes is recognizable to any senior auditor who has worked under deadline pressure: evidence of trouble surfaces, management offers a plausible explanation, and the engagement team accepts it without testing whether the same logic holds across the broader portfolio. The OSC characterizes this as a failure of professional skepticism, specifically "failing to consistently challenge and validate audit evidence it gathered."

Those audits were, in the OSC's words, "one of the only sources of independent information concerning the financial health of the four funds" available to investors, many of them retail clients and pensioners. Bridging was placed into court-ordered receivership on April 30, 2021, one month after KPMG issued the last of its auditor's reports. PricewaterhouseCoopers, appointed as receiver, subsequently estimated investor losses at $1.3 billion, one of the largest collapses of an investment manager in Canadian history. KPMG later withdrew its audit opinions entirely. Former CEO David Sharpe, former Chief Investment Officer Natasha Sharpe, and former Chief Compliance Officer Andrew Mushore have since been found by the Ontario Capital Markets Tribunal to have committed fraud by diverting investor funds for personal benefit.

A first hearing in the enforcement proceeding is scheduled for May 5, 2026. KPMG responded that "these are allegations, not findings," and said it would vigorously defend its work.

For practitioners on audit engagements involving hard-to-value private assets, the alleged failure points are specific: when testing finds overstated loans, that result should trigger a portfolio-wide collateral review, not a note in the file. A client's decision not to impair a loan requires documentation that can withstand independent scrutiny, not management's verbal assurance. And when the methodology used to value an asset class shows signs of unreliability, the outputs it produces cannot serve as audit evidence. The financial and reputational exposure now confronting KPMG reflects what happens when each of those moments passes without a challenge.