Regulators have slapped the entire family of exchange-traded funds from Emerge Canada Inc. with a trading halt, because the company has failed to find an auditor to review its financial statements.
Toronto-based Emerge revealed in mid-December that, nearly six weeks earlier, BDO Canada LLP had resigned as the auditor of its funds. At the time, Emerge said it was “working expeditiously to appoint a successor auditor.”
Without one, it didn’t file audited annual financial statements for its funds by a March 31 deadline. As a result, the Ontario Securities Commission issued a cease-trade order, or CTO, on Thursday for all the Emerge funds.
Emerge acknowledged on Monday that it has yet to find a new auditor. Once it finds one, the company said in a statement, it “will expeditiously work to complete and file the annual filings and seek to have the CTO lifted.”
Emerge said it is encouraging its fundholders “to consult with their investment advisors about the implications of the CTO,” or to reach out to Emerge Canada’s customer relations department.
Founded by chief executive officer Lisa Langley, Emerge operates in both Toronto and New York and manages about $118-million in assets in almost a dozen funds.
The company began to gain traction here in 2019 when it became the Canadian distributor for funds managed by ARK Investments, the U.S. company known for its charismatic CEO, Cathie Wood, and her frequent media appearances promoting Tesla Inc. and other high-growth stocks. In total, Emerge has six Emerge ARK funds, with ARK Investment Management LLC as a subadviser to each.
Last fall, Ms. Wood, in search of a bigger distribution player, expanded her Canadian business partnerships to include one of the country’s largest ETF providers, Bank of Montreal, which also launched a set of ARK funds.
More recently, Emerge has been expanding into investment funds focused on ESG (environmental, social and governance), and touting itself as Canada’s first and only majority woman-owned investment fund firm. In 2022, the company began trading five Emerge Empower funds, a set of ETFs and mutual funds that promote sustainable investing and are managed by teams led by women.
Like publicly traded companies, investment fund managers must make certain statements in securities filings when their auditors depart. Auditors must then make filings saying whether they agree with the statements.
In its Dec. 14 filing, Emerge said BDO had “resigned, on its own initiative” on Nov. 3.
The company said BDO had voiced no reservations in its reports for the Emerge funds for the two most recently completed financial years, which were 2020 and 2021. Also, there were no “reportable events” – a term for accounting issues, including disagreements with auditors, that must be disclosed under securities law.
The next day, in a filing to all provincial securities regulators, BDO said: “We agree with the statements made in the Change of Auditor Notice pertaining to our firm.”