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A proposed class action lawsuit filed against former fund manager Emerge Canada Inc. will not be proceeding because “the prospect of recovery is nil,” the lawyer for the class says.

“I would express tremendous disappointment that we were unable to pursue this case,” said Garth Myers, partner with Kalloghlian Myers LLP in Toronto. “We think the allegations continue to have merit.”

Myers said the reason for discontinuing the case is based entirely on financial factors. He said his firm applied to Ontario’s class proceedings fund “for disbursements and an adverse cost indemnity, and we were denied.”

As part of that application process, Myers said he was advised that Emerge Canada “has no assets or insurance,” and that Emerge’s insurance lapsed before the notice of action in the case was filed.

Myers said he will mail a motion of discontinuance to Emerge’s lawyer on Friday, adding that a court must provide permission to discontinue the case.

The proposed class action was filed on June 12, 2023, and had not been certified. The action alleged that unitholders suffered damages because of Emerge’s misconduct as well as the prolonged cease-trade order under which its 11 ETFs were placed.

That unprecedented cease-trade order began in April 2023, and lasted until the ETFs were delisted in October. Unitholders remained trapped in the ETFs until the funds were terminated in December.

The allegations in the proposed class action have not been proven, and a lawyer for Emerge Canada did not respond to a request for comment by press time.

On May 11, 2023, the Ontario Securities Commission (OSC) suspended Emerge Canada’s registration for capital deficiency, highlighting a receivable owed to five of its Emerge ARK ETFs that had grown to $5.5 million. The receivable totalled $4.69 million as of Dec. 29, 2023, including interest.

The former unitholders are now unsecured creditors of Emerge Canada, and no update has been provided about the status of the receivable.

The OSC continues to oversee Emerge Canada and require that its activities be monitored by a law firm, though it suspended the registrations of Emerge Canada on Feb. 12. In March, the OSC confirmed that it is investigating Emerge.

Myers said the discontinuance of the proposed class action would not prevent former unitholders from making individuals claims against Emerge. “There’s no prejudice to the class from our discontinuance,” he said.

Emerge ETFs timeline