Wellington-Altus Private Wealth founder and chair Charlie Spiring maintained an ownership stake in the U.S. affiliate of Emerge Canada Inc. while his firm promoted Emerge’s exchange-traded funds to clients for several years prior to the ETF manager’s collapse.
Buffalo-based Emerge Capital Management Inc. was one of three fund companies Mr. Spiring took an ownership stake in while also offering their products to his firm’s clients, Wellington-Altus confirmed to The Globe and Mail.
After Canadian regulators introduced client-focused reforms in 2021 – which did not prohibit ownership of other companies but created stricter rules around disclosure of conflicts of interest – Mr. Spiring sold his stakes in two of the fund companies. But he was unable to unload his 35-per-cent share of Emerge Capital Management, which he purchased in 2018 for US$672,000, Wellington-Altus spokesperson Allan Hiebert told The Globe.
Mr. Spiring’s relationship with Emerge was not widely known among the company’s own advisers or its clients, The Globe has learned. Multiple sources said they did not hear Mr. Spiring disclose his ownership interest to Wellington-Altus advisers in company e-mails, phone calls, dinners or town halls during a period when he discussed the investment opportunities provided by Emerge funds and ARK Investment Management LLC, the U.S. company that acted as a subadviser to several of Emerge Canada’s funds.
The Globe is not naming the sources as they are not authorized to discuss the matter publicly.
The company declined to comment on what advisers were told during meetings or events. In response to The Globe’s questions, Mr. Hiebert said it is the responsibility of all advisers to read the relationship disclosure document in which Wellington-Altus made a disclosure about Emerge, and to know about any products they recommend to clients.
Mr. Spiring’s investment in Emerge Capital Management has become notable given the troubles at Emerge Canada. The Ontario Securities Commission ordered Emerge Canada’s funds to be liquidated and delisted from the Cboe Canada exchange last year after the regulator found that the investment company owed millions of dollars to the funds it managed. Emerge Canada, which still owes $4.7-million to fund investors, has been unable to collect on millions of dollars borrowed from it by Emerge Capital Management. (Lenders first sued Emerge Capital Management for unpaid bills as early as 2019, according to a review of legal filings by The Globe.)
The outstanding balance has left investors as unsecured creditors of Emerge Canada, with few answers about whether or when they will ever receive the amounts owed. OSC spokesperson JP Vecsi told The Globe an active investigation of Emerge Canada is continuing, but the OSC “cannot comment on or disclose the details of any active investigations.”
Earlier this year, a proposed investor class-action lawsuit against Emerge Canada was abandoned after lawyers representing harmed fund investors found the company has no assets to recover.
Wellington-Altus clients owned more than a quarter of the Emerge funds in Canada as of April 14, 2023, when the OSC ordered a temporary trading halt on the Emerge funds. Of the $118-million in assets that was held in Emerge Canada at that time, $34-million came from Wellington-Altus clients. The investments were either directly held in Emerge ETFs, or included as part of Wellington-Altus’s in-house investment portfolios that it offered to its clients.
Emerge Canada first launched a group of investment funds called the Emerge ARK ETFs in July, 2019. Shortly after that, Mr. Spiring began promoting ARK and Emerge to his firm’s financial advisers, sources familiar with the matter told The Globe. Wellington-Altus also included several of the Emerge funds in the company’s proprietary managed investment portfolios and separately managed accounts.
Mr. Hiebert confirmed the Emerge ARK ETFs were added to the company’s in-house funds in December, 2020, as the funds were considered “suitable as a small percentage” – about a 2.5-per-cent allocation – of the Wellington-Altus Private Wealth’s turnkey asset management platform, a type of customized investment portfolio that holds third-party funds.
According to provincial securities laws, advisers and investment dealers are required to inform clients or customers of any “relevant relationships and connections” to an issuer of the securities. Wellington-Altus said it disclosed Mr. Spiring’s ownership stake to clients and advisers within a 12-page relationship disclosure document.
In a single sentence on page 10 of the document, the company reveals “an employee” held a “passive minority interest” in Emerge Capital Management, and lists Emerge Capital Management as a “a sub-advisor” on Wellington-Altus Private Wealth’s separately managed account funds. The document, which is given to clients when they open accounts, does not name Mr. Spiring as the “employee” or offer details about the size of the investment.
Mr. Spiring has been a prominent figure in building independent wealth management companies for more than 40 years. He launched Wellington West Holdings Inc. in 1993, selling it to National Bank of Canada in 2011 in a deal that brought its shareholders about $265-million. Then, in 2017, he re-emerged with a new firm, Wellington-Altus Private Wealth.
“Mr. Spiring has long supported entrepreneurs in the financial services industry,” Mr. Hiebert said.
Mr. Spiring invested in Emerge Capital Management, owned and run by financial services executive Lisa Langley, in September, 2018, according to Mr. Hiebert. In an e-mail to The Globe, Mr. Hiebert said that prior to purchasing the interest in Emerge, Mr. Spiring and Wellington-Altus fully disclosed the investment to the Investment Industry Regulatory Organization of Canada (IIROC) and “received advance written approval to make this investment.”
Sean Hamilton, a spokesperson for IIROC’s successor, the Canadian Investment Regulatory Organization (CIRO), confirmed to The Globe in an e-mail that IIROC began its review of Mr. Spiring’s Emerge Capital Management investment in April, 2018. In June of that year, it decided it had no objection “based on the information and representations made at that time.”
“Since that time, additional information has come into our possession that had not been previously disclosed. We are presently reviewing the information,” Mr. Hamilton said, but he would not provide any further information about what is under review.
While Mr. Spiring continues to hold his minority stake in Emerge Capital Management, Wellington-Altus’s Mr. Hiebert said that following the implementation of the client-focused reforms in 2021, he “made good faith” efforts to sell his ownership stake, but was unable to find a purchaser. Since the OSC placed its cease trade order on Emerge Canada, Mr. Hiebert said Wellington-Altus has undertaken an “extensive internal review of historical matters related to Emerge,” and concluded that the company acted in accordance with the applicable regulations and governing laws “in all material aspects.”
“The company has since taken responsive steps to implement new protocols and procedures to ensure that we continuously improve and align to best industry practices,” he added.
Mr. Spiring was, however, able to sell stakes in ETF providers Hamilton Capital Partners Inc. and Evolve Funds Group Inc. in 2022, on Jan. 17 and July 27, respectively. Rob Wessel, managing partner of Hamilton Capital, told The Globe that Mr. Spiring owned about 1 per cent of the firm. A spokesperson for Evolve said Mr. Spiring owned about 3 per cent of that company.
In February, 2019 – not long after Mr. Spiring’s investment in Emerge in September, 2018 – Ms. Langley filed a prospectus with Canadian regulators to launch a series of ETFs via a new company, Emerge Canada Inc.
Ms. Langley has 100-per-cent ownership of Emerge Canada, according to Canadian securities filings. A U.S. Securities and Exchange Commission regulatory filing lists Ms. Langley and Mr. Spiring as the two owners of Emerge Capital Management. Ms. Langley serves as chief executive officer of both companies, and Emerge Canada paid Emerge Capital Management fees as part of an investment advisory agreement.
The SEC considers Mr. Spiring a “control person” of Emerge Capital Management because he has the right to vote more than 25 per cent of the company’s securities, according to the instructions for filling out the form. Mr. Hiebert said Mr. Spiring never served on the board of Emerge Capital Management, nor did he ever have an employment, executive or officer role in the organization.
Emerge signed a deal in 2019 with ARK, run by prominent U.S investor Cathie Wood, and launched a series of new funds branded Emerge ARK in July of that year. Ms. Wood has become well-known for her aggressive advocacy of cutting-edge tech companies whose shares can rocket to high levels – and fall from those commanding heights nearly as quickly.
The Emerge ARK funds mirrored ARK’s U.S. products; for example, the biggest, the Emerge ARK Global Disruptive Innovation ETF, had nearly identical holdings to the ARK Innovation ETF, according to fund reports filed in each country.
The five original Emerge ARK funds peaked in value and assets under management in February, 2021, when they held close to $400-million in assets, according to data from Morningstar Direct. At their peak prices that month, the ETFs all were up between 150 per cent and 210 per cent in the little more than 18 months from their launch, according to the Morningstar data.
By the time Emerge Canada liquidated the ETFs at the end of 2023, however, four of the five were down 10 per cent to more than 30 per cent from their July, 2019, launch.
Mr. Hiebert told The Globe in an e-mail that Wellington-Altus clients received quarterly reports for their portfolio holdings, which “clearly detailed” that Emerge ARK ETFs were included in the Wellington-Altus investment portfolios. In addition, he said, clients received a statement for the months any Emerge ARK ETFs were purchased or sold by the in-house Wellington-Altus funds.
However, Mr. Spiring’s ownership of the subadviser, Emerge Capital Management, was not presented to clients or advisers in the quarterly reports or monthly statements.
Emerge Canada’s troubles became public on April 14, 2023, when the OSC imposed a temporary trading halt on Emerge’s 11 ETFs in Canada. The regulator said the Emerge funds had failed to file their financial statements.
At the same time, The Globe reported that Emerge Canada, which then managed 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 to the funds 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.
Last year, as part of its registration requirements, Emerge retained the services of AUM Law Professional Corp. to act as monitor of the windup of the funds. All the investments in the Emerge ETFs were sold in October, 2023, and the ETFs were terminated on Dec. 29.
Mr. Hiebert told The Globe that Mr. Spiring does not have access to any more current information than what is available to the general public.
“It is presumed that these shares (for which he paid US$672,000) are without any value whatsoever,” he added.
Unitholders remain unsecured creditors of Emerge Canada for their pro rata portion of the amounts still owed to the funds by Emerge Canada. The OSC has not released a timeline for when its investigation will be completed.