Emerge borrowed US$200,000 from employees as business tanked

Three employees of Emerge Canada Inc. have filed a notice of motion against Lisa Lake Langley and her Buffalo, N.Y.-based company, Emerge Capital Management Inc., for failing to repay nearly US$200,000 they lent the firm earlier this year.

According to documents filed with the Erie County Clerk in October, two Ontario-based employees of Emerge Canada and one based in Quebec lent Emerge Capital Management Inc. a total of US$199,763.24 on Jan. 5.

Emerge Capital Management and Toronto-based Emerge Canada were both founded by Langley, who also is CEO of both firms.

The Emerge employees were to receive a lump-sum repayment with 25% interest “upon closing of [third-party] funding, expected within the next day,” according to a copy of the promissory notes. The employees, who were senior leaders, were also to receive equity in Emerge Canada at the same value as their loans, with the percentage of equity to be based on Emerge Canada’s year-end valuation as of Dec. 31, 2022.

On April 6 of this year, the Ontario Securities Commission (OSC) placed a cease-trade order (CTO) on all 11 of Emerge Canada’s ETFs. The CTO was placed because Emerge missed the March 31 deadline to file audited annual financial statements. Emerge Canada’s auditor, BDO Canada LLP, had resigned on Nov. 3, 2022, and still has not been replaced.

The original agreement between the employees and Emerge Capital Management implied that repayment was possible “the next day,” although the due date for the loan was a year later on Jan. 5, 2024. However, the promissory note was amended on April 19 — less than two weeks after the CTO — to change the repayment date to May 15, with both parties agreeing. Emerge Capital Management agreed to pay an additional 1% interest, monthly, if it missed the repayment deadline.

The May 15 deadline was not met, the employees allege. Just four days prior, on May 11, the OSC had suspended Emerge Canada’s registration due to capital deficiency, stating that the firm was likely deficient at some point prior to Sept. 30, 2022.

The U.S. and Canadian Emerge companies are also facing accusations of not paying employees.

According to documents filed with the Erie County Clerk in August, a woman hired in February 2022 as an executive assistant with Emerge Capital Management alleges she was not paid wages from Dec. 16, 2022 until March 6, 2023, when she was “constructively discharged from her employment.” The woman further alleged she was dismissed “in retaliation for her complaints of labor law violations, including failure to pay wages.”

Langley and Emerge Capital Management are both named as defendants in both proceedings and have not responded to the allegations. An Emerge spokesperson had no comment.

An employee of Emerge Canada told Advisor.ca they too stopped receiving paycheques in December 2022. The employee received a lump-sum payment representing less than 5% of their unpaid wages in June, but quit a few months later and has not pursued legal action.

The U.S. Emerge company also owes money to New York State’s workers’ compensation board.

According to statements entered with the Erie County Clerk in October, Emerge Capital Management has been charged $4,000 for failing to carry Employers Workers’ Compensation Insurance from Feb. 4, 2022 to March 20, 2022.

The charge remains unpaid.

Emerge ETFs timeline

• April 6: Cease-trade order issued on all 11 ETFs managed by Emerge Canada Inc.
• April 14: Advisor.ca reports that Emerge Canada’s suite of six ARK ETFs is owed more than $2.5 million in receivables from Emerge
• May 11: Emerge Canada suspended for capital deficiency
• July 14: Liquidation date for the U.S. versions of the five EMPWR ETFs
• Sept. 15: Five U.S. EMPWR ETFs apply to the U.S. Securities and Exchange Commission to deregister
• Oct. 19: Emerge Canada announces it’s liquidating its 11 ETFs
• Dec. 20: Date by which the 11 ETFs will be liquidated

Correction: The amount lent to Emerge by employees has been updated. The US$250,000 previously reported was the amount owing to the employees from Emerge after interest.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.