Investors in Emerge Canada Inc.’s Toronto-listed versions of Cathie Wood’s popular exchange traded funds are stuck in limbo.

Regulators slapped the investment firm with trading bans on 11 of its funds — including six Ark Investment Management-partnered funds — after Emerge Canada missed end-of-year regulatory filing deadlines. 

The firm, which has also ventured into women-led environmental, social and governance ETFs, describes the Emerge Ark ETFs as “sub-advised” by Ark. Some of those ETFs are up more than 20 per cent year-to-date, according to data compiled by Bloomberg. Now, the funds can’t trade and its unclear if or when the ban will be resolved.

Interest in risky growth-oriented investments — like Ark’s innovation themed funds — has faded after the Federal Reserve ended its low-interest rate regime last year. Emerge’s Canadian funds have seen minimal interest in 2023 with its largest Ark-tied fund, the $75 million (US$56 million) Emerge ARK Global Disruptive Innovation ETF (ticker EARK CN) logging US$2.7 million of outflows so far in 2023. 

Trouble first arose for Emerge Canada when the firm’s auditor, BDO Canada LLP, resigned in November, according to a Morningstar report. On April 6, the Ontario Securities Commission issued its cease-trade orders — meaning that direct and indirect trading of the funds, including redemptions and distributions, must stop — saying that none of the funds filed their year-end annual disclosure as required by provincial law. 

Included in the ban were EARK CN and the Emerge ARK AI & Big Data ETF (EAAI CN) as well as some of the firm’s women-run ESG funds. 

Such trading bans are uncommon, according to Todd Sohn, an ETF strategist at Strategas Securities. “I see liquidations quite often, but a cease-trade order, that’s not something I see very often.”

What will happen next is uncertain, Sohn said. The OSC declined to comment. 

“We are working to engage a new auditor and prepare the required financial documents to have the CTO lifted,” Emerge Canada CEO Lisa Langley wrote in an April 10 letter to investors. She was “unable to provide any assurances on the timing of lifting of CTO or whether the CTO will be lifted at all.” 

As a result, Ark is now re-evaluating its relationship with Emerge, though it intends to remain in Canada with the offerings it manages directly. “We are certainly evaluating the situation continuously,” Tom Staudt, Ark’s chief operating officer said by phone. “We are prepared to take any action that is required.”

Ark said it maintains a relationship with BMO, which offers its ETFs in Canada, and “Emerge Canada’s situation is not related in any way to ARK’s funds in partnership with BMO, nor ARK’s ETFs and other products in the U.S. or elsewhere.”

Emerge Canada declined to provide additional comment.