Ontario’s securities watchdog suspended the registration of Emerge Canada Inc., an investment firm known for selling Toronto-listed versions of Cathie Wood’s popular exchange-traded funds. 

The Ontario Securities Commission said the firm has failed to comply with its capital requirements since at least September and ordered it to wind down, or find another company to take over its activities. Emerge Canada is banned from being an investment fund manager, portfolio manager or exempt-market dealer, according to an order from the OSC’s director of compliance and registrant regulation.

Emerge has been unable to file audited financial statements for 2022 after its auditor quit. In April, regulators hit the investment firm with trading bans on 11 of its funds — including six Ark Investment Management-partnered funds that follow Wood’s investment strategies — leaving investors in those products in limbo.

Emerge owes Ark about C$5.5 million ($4.1 million), according to the regulatory filing — and it can’t pay unless it receives millions of dollars it’s owed by Emerge Capital Management Inc., a US affiliate.

‘Overly Punitive’
Emerge’s lawyers argued that suspending the firm and requiring the wind-up of its funds “is overly punitive and is unwarranted in the circumstances,” and that a forced sale of fund assets “may occur at liquidation values.” The Toronto-based company didn’t immediately reply to requests for comment.

Emerge, founded by Lisa Lake Langley, told regulators that it’s North America’s first all-women investment team managing socially responsible strategies. Forcing Emerge out of business could cause reputational damage to other small ETF providers, it said.

But the OSC director, Debra Foubert, didn’t buy the argument.

“While I applaud the fact that Emerge is breaking ground as North America’s first all-women investment team managing innovative and socially responsible investment strategies, it did not form any part of my decision as the regulatory requirements apply equally to all registrants, in the absence of specific exemptions,” Foubert wrote in her decision.

Ontario, like other jurisdictions, has capital rules for investment managers to protect clients in case of insolvency. Emerge Canada had been calculating its working capital by including the money owed to it by the US affiliate, which was C$3.4 million as of March 31. 

This article was provided by Bloomberg News.