The firm's directors and independent committee members face allegations of securities breaches
The Ontario Securities Commission (OSC) has initiated an enforcement proceeding against Emerge Canada Inc., alleging violations of Ontario securities laws.
The OSC's application for enforcement proceeding, filed on March 6, specifically names Emerge Canada Inc., its founder and CEO Lisa Langley, CFO Desmond Alvares, and Independent Review Committee (IRC) members Marie Rounding, Monique Hutchins, and Bruce Friesen.
According to BNN Bloomberg, Emerge Canada, an investment firm recognized for marketing Toronto-listed versions of Cathie Wood’s ETFs, allegedly diverted an estimated $6m of investor funds through self-dealing loans over approximately four years.
The OSC claims that the majority of this money was used to sustain Emerge's financially distressed businesses.
The regulator further asserts Emerge breached obligations to investors by entering prohibited loans, neglecting conflicts of interest created by these receivables, and failing to maintain accurate records and effective control systems.
The allegations extend to members of the independent committee overseeing the ETFs.
According to the OSC, Marie Rounding, Monique Hutchins, and Bruce Friesen “breached [their] duties to investors, caused the funds to enter into prohibited loans, failed to properly address the conflict of interest created by the receivable, and failed to maintain proper books and records, or an adequate system of controls and supervision to ensure compliance with securities legislation.”
Lawyer Jennie Baek of McMillan LLP, representing Rounding and Hutchins, described the OSC's action as “unprecedented.”
Baek emphasized, “These women have impeccable records. We believe the grounds that OSC enforcement is relying upon are tenuous.”
Friesen declined to comment on the allegations.
Emerge's financial issues surfaced publicly when it failed to submit audited financial statements for 2022, leading to the resignation of its auditor.
Subsequently, in April 2023, the OSC halted trading in all 11 Emerge funds, including six partnered with Ark Investment Management LLC.
By May 2023, recognizing insufficient capital reserves, the OSC banned Emerge from operating as an investment fund manager, portfolio manager, or exempt-market dealer and ordered the firm to wind down.
The wind-down concluded in December 2023, leaving fund unitholders unable to access their investments throughout this period.
By December 29, 2023, Emerge had an outstanding obligation of $4.7m owed to five Ark-partnered ETFs, a debt which remains unpaid. The affected investors are now classified as unsecured creditors.
An effort for a class-action recovery of these funds was discontinued in April 2024.
According to the Capital Markets Tribunal Notice of Hearing dated March 10, the initial hearing to address these allegations is scheduled for March 31, at 10:00 am via videoconference.
This session is defined as the first case management hearing under subsection 14(4) of the Capital Markets Tribunal Rules of Procedure.
Parties failing to attend the hearing may have the case proceed in their absence without further notice.
According to the BNN Bloomberg, representatives for Emerge Canada and Ark Investment Management LLC did not immediately respond to requests for comment.
