The Ontario Securities Commission (OSC) has alleged several securities violations against failed investment fund manager Emerge Canada Inc., two of its directors and officers, and members of its funds’ independent review committee in connection with a $4.7-million receivable that Emerge still owes its funds.
The OSC alleges Emerge acted in its own interests by knowingly taking an estimated $6 million of investor money in self-dealing loans over a period of nearly four years, starting in 2019 — “most of which was used to prop up its own businesses that were experiencing financial distress,” the regulator said in a release on Monday.
The OSC alleges Emerge breached its 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.
“As officers and directors of Emerge Canada, Lisa Lake Langley and Desmond Alvares authorized, permitted or acquiesced in the breaches of Ontario securities law by Emerge Canada and are therefore liable for Emerge Canada’s breaches,” the OSC’s application for enforcement proceeding says. Langley also failed to meet obligations as chief compliance officer and ultimate designated person of Emerge Canada, it says.
The OSC also alleges that the Emerge independent review committee members Marie Rounding, Monique Hutchins and Bruce Friesen, in their response to the receivable, breached their duties to investors and other obligations under securities law.
Through the committee’s inaction, “it deprived investors of safeguards designed to protect them from this type of harm,” the OSC said in the release.
In April 2023, the OSC placed Emerge Canada’s 11 ETFs under an unprecedented cease-trade order, which lasted until the ETFs were delisted in October 2023. A month later, the OSC suspended Emerge Canada’s registration for capital deficiency. Unitholders remained trapped in the ETFs until the funds were terminated in December 2023.
When the funds were terminated, Emerge still owed a $4.7-million receivable to five of six Emerge ARK ETFs it managed.
Emerge has made no payments toward the receivable since the funds’ termination, the OSC’s application says, and the total amount remains outstanding and owing.
A hearing is set for March 31.