What should Bridging Finance’s investors do?
“A conflict is a conflict, and human nature kicks in when a conflict arises. The very definition of a conflict is that one interest we are charged with protecting must suffer when we serve the other interest we also protect.” – Marianne M. Jennings
A court has appointed PwC to unwind Bridging’s investment portfolio and pay the proceeds to investors. As Receiver, PwC will have to understand and contemplate the best course of action for each loan – some of them maturing in 2044 – and equity participation held by the Bridging Funds to maximize returns. Receivership of an investment fund is not a swift nor a simple process. For example, Madoff’s Receiver still distributes to investors – the last distribution happened on February 26th, 2021, more than 11 years after the Receiver was appointed.
The receivership is a consequence of a series of decisions that worked against the interests of the investors. A financial blow-up is the outcome of the management’s actions. Some happened because of excessive leverage as LTCM and Amaranth Advisors. Others deceived investors as Bernie Madoff and Ivar Kreuger. But no matter the reason, the Receiver will always make their best effort to reconstruct a building from the ruins left. A court will supervise and guide their actions.
However, that doesn’t mean that Bridging’s investors shouldn’t have a voice during the proceedings. Unitholders will be the ones suffering the consequences of (a) Bridging’s management actions and (b) some financial institutions and investment advisors who failed to perform their due diligence on the products they were pushing to their clients. It seems that in some cases, dealers cared more about the fees they received from Bridging. Pending the OSC’s investigations results, financial institutions may face liabilities for failing to perform their fiduciary duty for their clients.
As said in the Second Report of the Receiver, many of these financial institutions and investment advisors have engaged in talks with PwC expressing their interest “in taking an active role in providing input and feedback to the Receiver regarding its decision-making in the Receivership Proceeding.” Meaning, the same parties that failed to investors once want to have an active role in the Receivership Proceeding.
Bridging’s proposition sounded too good to be true. The signs or warnings were just a Google search away or could be found by reading the audited accounts. Financial Institutions had the responsibility to conduct due diligence, and they failed. Allowing them to control these committees might create conflicts of interest around future actions or liabilities the financial institutions might be fighting in the future.
If the worst scenario is confirmed, some institutions might decide to compensate investors for their losses – as Santander did with the clients that bought Madoff’s feeders funds from them. Others might see how some clients suffer losses if the Receiver decides to pursue clawbacks from early gains from the Bridging’s Fund. Some even might go to trial like TD for their role with Stanford International Bank, a $US 7 billion Ponzi scheme unravelled in 2008. One way or another, financial institutions will face circumstances where conflict will arise.
Investors should get organized and appoint an independent committee that will look after their interests without any conflicts. As a head start, law firm Weisz Fell Kour is assembling and representing a group of investors, and it seems like Aird & Berlis speak for a couple of institutional unitholders. I will encourage individual unitholders to join forces and promote an independent committee to represent them without conflicts of interest in the long journey they will be facing.
Disclaimer: This article is not investment advice and represents the opinion of the author.