On April 14, the Ontario Securities Commission imposed a temporary trading halt on the company’s 11 ETFs.Melissa Tait/The Globe and Mail
Emerge Canada Inc., its U.S.-based counterpart and the CEO of both companies, Lisa Langley, are facing multiple lawsuits tied to their failed business.
Emerge and Ms. Langley face six suits from employees, governments, vendors and others in Ontario and New York State who say they haven’t been paid what they’re owed. The currently outstanding claims total more than $900,000. These have not been tested in court.
And a Toronto law firm has filed a proposed class-action lawsuit on behalf of investors who held Emerge’s Canadian exchange-traded funds, which regulators have ordered liquidated.
However, the legal trail for Ms. Langley goes back even longer. Lenders first sued her companies for unpaid bills as early as 2019, Emerge Canada’s first year in business. Ms. Langley faced legal action, personally, for an unpaid mortgage in 2011, just before filing for personal bankruptcy in Ontario. And she’s faced liens for unpaid taxes from both the Canada Revenue Agency in 2011 and the U.S. Internal Revenue Service in 2017.
The court record – 12 suits (including the class action), three tax liens and a bankruptcy – paint a picture of an entrepreneurial executive who has for years been accused for years of not paying her bills.
Corey Goldman, a spokesperson for Emerge was approached on Friday and has declined to comment for this story.
On April 14, the Ontario Securities Commission imposed a temporary trading halt – known as a cease-trade order – on the company’s 11 ETFs. At the same time, The Globe and Mail reported that Emerge Canada, which manages about $118-million in assets, owed a total of $2.53-million to its six Emerge ARK funds.
A month later, the OSC suspended Emerge Canada’s operating licence. The OSC revealed that the amount owed was $5.5-million, and that Emerge Canada was short of cash because it hasn’t collected money owed to it by U.S.-based Emerge Capital Management Inc., also led by Ms. Langley. Emerge Canada is scheduled to wind down its ETFs by Dec. 20.
Ms. Langley, a native of Baltimore, Md., married a Canadian in 1988, just shy of her 25th birthday. Her professional experience, according to her LinkedIn profile, included jobs in Canada and internationally from 2000 to 2011, before she moved to Buffalo in 2012.
She founded Emerge Capital there in January, 2016. She then launched Emerge Canada in 2019, serving as CEO and chief compliance officer for both investment companies.
The largest of the Emerge lawsuits comes from three former Canadian employees who say they are owed unpaid wages, as well as hundreds of thousands of dollars in loans they made to the company.
Darren Gazdag, Andrew Hungerbuhler and Avipsha Mitra are suing Emerge Canada, Ms. Langley and two other Emerge Canada directors – Desmond Alvares and Edward Hackney – in Ontario for a combined $279,648.81, citing a breach of the Employment Standards Act. Mr. Alvares and Mr. Hackney did not respond to requests for comment.
The three former employees are also suing Buffalo-based Emerge Capital in state court in New York, saying they lent a combined US$199,763 – with US$152,783 of that coming from Mr. Gazdag – to the company on Jan. 5 of this year.
Promissory notes filed as exhibits to the case, dated Jan. 10, show Ms. Langley agreed to pay a flat 25-per-cent interest payment with “the full intention” to pay the three a total of nearly US$250,000 “upon the closing of funding, expected within the next day.” If not paid the following the day, the note said, the repayment was due May 15, with monthly interest of 1 per cent after that date. Emerge Capital management was also supposed to give the three stock in the company equal to the value of their loans.
Nick Papageorge, a lawyer for the three at Ross & McBride LLP, declined to comment on their behalf. According to their LinkedIn profiles, Mr. Gazdag was vice-president of national sales for Emerge Canada for 14 months, until September of this year; Mr. Hungerbuhler was director of investment management for Eastern Canada for 14 months, until October; Ms. Mitra was vice-president, product development and sustainability for 21 months until May.
The other suits include a US$4,000 fine from the Workers’ Compensation Board of the State of New York in October for allegedly failing to carry worker’s compensation insurance in that state; a September suit in Ontario claiming $111,159.64 in unpaid rent; a suit in August from a former employee in Buffalo who says the company failed to pay nearly three months’ worth of her US$48,000 salary; and a July lawsuit from a upstate New York man who said Ms. Langley still owes US$116,392 on a January, 2018, personal loan for US$197,000.
While those suits remain outstanding, U.S.-based Emerge Capital has settled three different lawsuits from companies that make loans based on a company’s receivables – a form of financing often used by borrowers that have difficulty getting conventional bank financing.
The claims were for US$19,309.76 in 2019; US$280,883.40 in 2022; and US$87,100 in January of this year. Cloudfund LLC, the 2023 plaintiff, said that on Dec. 30, 2022, Emerge Capital blocked Cloudfund from the bank account it had agreed to provide access to for loan payments.
However, Ms. Langley’s personal financial problems predate Emerge Capital.
In 2011, CIBC Mortgages Inc. filed a legal claim against Ms. Langley in the amount of $350,920.86. Public records show Ms. Langley took out a $354,852.86 mortgage from CIBC in April, 2007, for a home on Archstone Street in Whitby, Ont.
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In August and October, 2007, she took out two additional loans on the property totalling $72,000. Public records recorded the loans charged 14-per-cent interest and 16-per-cent interest, respectively. The second loan came from a company called “Financial Workout Specialist.”
In February, 2010, the CRA filed a tax lien against Ms. Langley in an amount of $27,829.
A year later, in March, 2011, Ms. Langley filed for bankruptcy, declaring $43,951 in assets and $234,395 in liabilities, including nearly $125,000 to five different banks and lenders, $22,400 to the CRA and $8,259.47 in unpaid legal bills. The filing also said she had already sold the Whitby home the previous month to pay the first, second and third mortgages on it.
In a portion of the filing labelled “give reasons for your financial difficulties,” she said “Job loss caused a reduction in income. This caused an overextension of credit; insufficient income to pay debts.”
Government of Canada records show the matter wasn’t discharged until Jan. 21, 2019, a few months before the launch of Emerge Canada.
Still, Ms. Langley’s financial ills continued after her move to the United States in 2012.
In February, 2016, the State of New York filed a tax lien against her in the amount of US$10,532; the lien was released in June of that year.
In August, 2016, the Fox Valley Club, a golf course in Lancaster, N.Y., sued Ms. Langley for US$5,486.71 plus 9-per-cent interest from Sept. 30, 2014. In keeping with New York law at the time, the bare-bones suit said the amount was for “the reasonable value and agreed price” for services provided to her. The court records do not show the disposition of the matter.
In May, 2017, the IRS filed a federal tax lien against Ms. Langley in the amount of $82,810. The lien was released in June, 2019 – the month before Emerge Canada launched its first five ETFs.
Emerge’s Canadian fund family, which ultimately grew to 11, is now the subject of a proposed class-action lawsuit that targets the company.
The suit, filed by in August by Toronto-based law firm Kalloghlian Myers LLP, claims the fund company was negligent and breached its fiduciary duty to investors who held assets in an Emerge fund as of April 6, 2023. That is the date of the cease trade order on Emerge Canada by the OSC.
Kalloghlian Myers filed the suit on behalf of Ian Cluroe, an Arizona-based investor who purchased an undisclosed amount of units in four of the Emerge ARK funds. The suit has not yet been certified by the court to proceed as a class action.
“It’s true that Emerge ETF investors took the risk that their securities would fluctuate in value,” Garth Myers, a partner with Kalloghlian Myers, said in an interview.
“That’s part of any investment. But what happened here was something more – a failure to comply with basic ETF and accounting rules, outside the ordinary risk assumed by investors. Investors need to be able to place their trust in the integrity of the capital markets. Emerge’s misconduct was a violation of that trust.”
The suit claims Emerge – as a manager and trustee – breached its duty of trust, among other things, when it failed to maintain a minimum excess working capital of $100,000 and failed to file its annual audited financial statements for 2022.
Without the breaches, the suit argues, the Emerge ETFs would have continued to trade at or around their net asset value and the class members would not have sustained any damages.