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Cathie Wood, founder and CEO of ARK, speaks during a conference in New York on Sept. 13, 2021.BRENDAN MCDERMID/Reuters

Prominent U.S. investor Cathie Wood is distancing her company ARK Investments from Toronto-based Emerge Canada Inc. after regulators slapped a trading halt on all of Emerge’s exchange-traded funds, including those branded with ARK’s name.

On Tuesday, ARK Investments said in a statement that the Emerge Canada ETFs involved in the Ontario Securities Commission’s action are not ARK’s funds, and that ARK is “not affiliated with and has no ownership or role in the management of Emerge Canada, nor its ETFs.” The company said it was “deeply disappointed” with the situation.

Emerge entered Canada in 2019 when it launched the Canadian family of funds subadvised by ARK Investments, the U.S. company known for its charismatic chief executive officer, Ms. Wood, and her frequent media appearances promoting Tesla Inc. and other high-growth stocks. Emerge Canada 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.

ARK remains listed as an adviser to Emerge U.S. – which in turn is the subadviser to the Canadian Emerge ARK funds – according to the most recent fund filings from June, 2022. However, in a statement Tuesday, ARK minimized its role, saying “Emerge’s U.S. subsidiary uses investing models from ARK to help advise Emerge on how to manage the Canadian funds that use ARK’s name.“

“The only Canadian ETFs for which ARK is the discretionary portfolio manager are in partnership with BMO Global Asset Management and encompass a different suite of innovation ETFs,” ARK said in its statement. “Importantly, Emerge Canada’s situation is not related in any way to the three BMO ARK ETFs nor ARK’s ETFs and other products in the U.S. and elsewhere.”

Earlier this month, the OSC issued a cease-trade order for all of the Emerge ETFs because the company had failed to file financial statements by a March 31 deadline. It is the first such action the OSC has taken against a fund family of ETFs.

Emerge first said in a mid-December news release that BDO Canada LLP had resigned as the auditor of its funds nearly six weeks earlier. At the time, Emerge said it was “working expeditiously to appoint a successor auditor.” Emerge revealed last week that it had yet to hire a replacement, prompting the failure to file the financial statements.

“ARK became aware of Emerge Canada’s failure to file audited annual financial statements for the Emerge Canada ETFs shortly after Canadian securities regulators issued the cease-trade order, a situation in which we are deeply disappointed,” ARK said.

“ARK is monitoring closely the efforts of both Emerge U.S. and Emerge Canada to obtain a quick and satisfactory resolution and we are prepared to take additional action if warranted or necessitated.”

OSC spokesperson JP Vecsi told The Globe the cease-trade order was issued for an indefinite period of time. When such an order is issued with no expiry date, “it will remain in effect until the decision is revoked by the regulator, when and if the company or individual corrects the deficiencies or meets certain conditions,” he said.

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.

Emerge’s financial statements show the manager owes $2.53-million to its ARK-branded funds, a debt that more than doubled in the first half of last year. The amounts owed to the funds are money that was “prepaid” to Emerge for managing the ETFs, according to a note in the funds’ 2019 annual financial statements.

“We consider that our practice has benefited unit holders by providing both interest (on the receivable) and a reduced management expense ratio for the duration of our reimbursement of expenses,” Emerge told The Globe in a statement last week.

In commentary published Monday, Bank of Nova Scotia analyst Alex Perel called the receivables issue “a little quizzical,” noting that Emerge’s explanation of absorbing costs “might be borderline tolerable in the funds’ first year of operation” but said it “hardly stands to reason subsequently.”

When combined with the resignation of an auditor, Mr. Perel said it “paints a grim picture” that he cannot fully diagnose from financial statements.

“Nevertheless, we believe the question quickly becomes whether receivables from a manager which have been growing steadily are likely to be repaid – and if not, then what the value of the fund would be when investors get to a position to exit,” he added.

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