MFDA Reasons for Decision

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Reasons for Decision
File Nos. 201255 and 201258



IN THE MATTER OF A DISCIPLINARY HEARING
PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Re: Bradley Gerard Crompton, Michelle Ann Crompton
and William Craig Henderson


Heard: March 9, 2015, in Toronto, Ontario
Reasons for Decision: March 26, 2015


REASONS FOR DECISION

Hearing Panel of the Central Regional Council:

Mark J. Sandler
Chair

Nick Pallotta
Industry Representative

Selwyn Kossuth
Industry Representative

Appearances:

H.C. Clement Wai
)
For the Mutual Fund Dealers Association of

)
Canada
)

Bradley Gerard Crompton
)
Not in attendance nor represented by Counsel

Michelle Ann Crompton
)
Not in attendance nor represented by Counsel

William Craig Henderson
)
Not in attendance nor represented by Counsel
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INTRODUCTION

1.
Notices of Hearing were issued by the Mutual Fund Dealers Association of Canada
(“MFDA”) alleging misconduct against Bradley Gerard Crompton (“Brad Crompton” or
“Crompton”), Michelle Ann Crompton (“Ms. Crompton”), William Craig Henderson
(“Henderson”), William Morris Adams (“Adams”), and Ian Omar Webster (“Webster”). The
allegations were interrelated.

2.
At a teleconference conducted on October 28, 2014, the hearing panel set March 9, 2015
for the hearing into these allegations. Four days were set aside. All of the Respondents
participated directly or through their counsel (or both) in the setting of the hearing dates.

3.
On March 9, 2015, the hearing panel was advised that a Settlement Agreement had been
entered into between Staff of the MFDA (“Staff”) and the Respondent, Adams. After we heard
submissions from Staff and counsel for Adams in camera, we approved the Settlement
Agreement. As a result, the proceedings involving Adams, including our Order became public.
We have since released written reasons for approving the Settlement Agreement.

4.
Staff advised us that it was discontinuing the proceedings against Webster. Accordingly,
it was unnecessary for us to address his matter.

5.
The remaining Respondents did not attend for their hearing. As already indicated, they
fully participated in setting the dates for their hearing. In response to queries in writing from
Staff, two of the three Respondents indicated that they did not intend to attend their hearing. The
third Respondent did not respond. Staff was also notified well prior to the hearing that counsel
who had earlier appeared on the Respondents’ behalf was no longer retained to act for them. The
only inference available on the evidence is that the Respondents have all chosen not to
participate in their hearing.

6.
In summary, the Respondents have expressed no intention to participate in their hearing.
The only indications are to the contrary. They did not indicate any desire that the proceedings be
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adjourned for any reason. The Notices of Hearing served on the Respondents specifically advised
them that, if they fail to attend their hearing, it may take place in their absence. Staff was
prepared to proceed on the dates set for the hearing. Four days had been set aside. In the
circumstances, we directed that the hearing proceed in the absence of the Respondents. We have
the discretion to do so pursuant to Rule 7.3 item 1 and Rule 13.5 of the MFDA Rules of
Procedure.

7.
Rule 7.3(1) item 2 and Rule 13.5 also confer discretion on a hearing panel to accept the
facts alleged and conclusions drawn by the MFDA in a Notice of Hearing as proven if a
Respondent fails to attend the hearing. Again, the discretion to do so was clearly set out in the
Notices of Hearing served on each of the Respondents.

8.
Given the circumstances outlined above, we were satisfied that this was an appropriate case
in which to exercise our discretion to permit the MFDA to rely on the facts pleaded in the
Notices of Hearing as proven. This, of course, did not relieve us of the obligation to carefully
review the Notices of Hearing, together with any additional evidence tendered by Staff to
determine whether each of the contraventions alleged in the Notices of Hearing was proven.

9.
Staff supplemented the facts contained in the Notices of Hearing in two ways. First, Staff
called Adams as a witness. He adopted as accurate, and elaborated upon, the facts contained in
his Settlement Agreement. Second, Staff called Ms. Siu, one of the investigators, to introduce
additional facts and documents not otherwise reproduced in the facts contained in the Notices of
Hearing.

10. In addition to the viva voce evidence, which was admissible against all three Respondents,
we considered the facts contained in the Notice of Hearing respecting Mr. Crompton as against
him, and separately considered the facts contained in the Notice of Hearing respecting Ms.
Crompton and Mr. Henderson as against them. This separate consideration of each set of facts
was mandated because Rule 7.3(1) item 2 does not, in our view, permit the facts contained in a
Notice of Hearing respecting one Respondent to be adopted as proven as against another
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Respondent who was served with another Notice of Hearing. That being said, there was
considerable overlap between the facts contained in each Notice of Hearing.

11. We accept the undisputed evidence of Mr. Adams and Ms. Siu. Both gave clear, consistent
evidence supported by existing documentation. Coupled with the facts contained in the Notices
of Hearing, we are satisfied that Mr. Crompton, Ms. Crompton and Mr. Henderson engaged in
the misconduct alleged in each of the Notices of Hearing.

THE FACTS

Registration Histories

12.
From May 2, 2007 to January 10, 2008, Brad Crompton was registered in Ontario as a
mutual fund salesperson with Monarch Wealth Corporation (“Monarch”), a Member of the
MFDA. From July 2003 to March 30, 2007, he was registered in Ontario as a mutual fund
salesperson with Desjardins Financial Security Investments Inc. (“Desjardins”), a Member of the
MFDA. Prior to Desjardins, he had been registered as a mutual fund salesperson since 1996. He
is currently not registered in the securities industry in any capacity.

13.
Between May 3, 2007 and October 20, 2008, Ms. Crompton was registered in Ontario as
a mutual fund salesperson and branch manager with Monarch. From June 30, 2006 to March 30,
2007, she was registered in Ontario as a mutual fund salesperson and branch manager with
Desjardins. She had been registered as a mutual fund salesperson since 1997. She is currently
not registered in the securities industry in any capacity.

14.
Between May 3, 2007 and October 20, 2008, Henderson was registered in Ontario as a
mutual fund salesperson with Monarch. From June 30, 2006 to March 30, 2007, Henderson was
registered in Ontario as a mutual fund salesperson with Desjardins. Henderson had been
registered as a mutual fund salesperson since 1997. Henderson is currently not registered in the
securities industry in any capacity.

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Background

15.
At all material times, Brad Crompton, Ms. Crompton and Henderson worked out of a
branch office located at 4100 Yonge Street, Toronto Ontario (the “York Mills Branch”). Ms.
Crompton was the branch manager of the York Mills Branch. Adams worked in an Ottawa
office.

16.
In or around November 2006, Desjardins conducted a review of the York Mills Branch.
The branch review revealed, amongst other things, that Approved Persons at the York Mills
Branch, including Crompton, Ms. Crompton and Henderson were engaged in outside business
activities and selling products that were not known to or approved by Desjardins. In particular,
the Approved Persons were involved with a company called Canada Mortgage & Lending Corp
(“CMLC”) and were promoting a leveraged investment strategy called “Debt Free…For Life”.
The branch review revealed that Crompton was the President of CMLC.

17.
As a result of the branch review, Crompton, Ms. Crompton and Henderson resigned from
Desjardins and transferred their registration to Monarch effective May 2, 2007.

18.
While registered with Monarch, the York Mills Branch operated under the trade name of
Canada Mortgage & Lending Corp. The “CMLC” trade name was approved by Monarch to be
used in conjunction with the business of Monarch.

19.
Commencing in or around November 2008, Monarch received a number of complaints
from clients of the York Mills Branch. The complaints involved a leveraged investment strategy.

20.
Monarch conducted an investigation into the complaints and found, amongst other things,
that unregistered individuals were servicing client accounts and that the clients' net worth and/or
incomes had been inflated on loan applications.

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CMLC and Debt Free…For Life

21.
CMLC promoted through newspaper ads and other media a leveraged investment strategy
called “Debt Free…For Life” (the “Leveraged Investment Strategy”). The Leveraged Investment
Strategy was not known to or approved by Monarch. (Monarch was aware that clients at the
York Mills Branch were implementing leveraged investment strategies in their accounts but was
not aware of the promotion or branding of those leveraged investments to clients as part of the
“Debt Free…for Life” program.)

22.
Individuals answering the ads would receive an information package through the mail
from CMLC entitled “Special Report”. The Special Report contained information regarding a
program (the Leveraged Investment Strategy) which purported to, amongst other things,
consolidate debt and increase a client’s cash flow while reducing their taxes.

23.
CMLC would contact the individuals to set up meetings with CMLC representatives to
discuss the Leveraged Investment Strategy.

24.
The Leveraged Investment Strategy included recommendations that interested individuals
become clients, obtain investment loans or refinance the equity in their homes and use the
borrowed monies to purchase mutual funds and, for certain clients, a universal life insurance
policy.

25.
In most cases the borrowed monies were used to purchase return of capital (“ROC”)
mutual funds. CMLC represented to the clients that the monthly distributions from the mutual
funds they invested in would be sufficient to cover the payments on their investment loans, the
premiums on their life insurance policies and/or provide extra income.

Allegation 1 (Notice of Hearing Respecting Crompton): Facilitating a Stealth Advising
Arrangement and Failing to Perform the Necessary Due Diligence to Ensure Suitability

26.
Brad Crompton was the President and directing mind of CMLC.

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27.
In or around May 2007, CMLC hired two non-registered persons to meet with clients.
The non-registered persons were not employees or agents of Monarch. They were trained and
instructed by CMLC to present the Leveraged Investment Strategy to interested individuals.

28.
The non-registered persons would meet with clients, obtain relevant information from the
clients, recommend the Leveraged Investment Strategy to the clients and then complete the
requisite documents, including a New Account Application Form (“NAAF”) and loan
documents, to facilitate the implementation of the Leveraged Investment Strategy for interested
clients.

29.
Crompton (and as later reflected, Ms. Crompton) instructed the non-registered persons to
get the clients to sign the NAAF and the loan documents in blank (i.e. without the client’s Know
Your Client (“KYC”) information filled out). The documents would then be sent to the CMLC
Underwriting Department. The Underwriting Department would then populate the KYC
information in the documents in a manner which would ensure the documentation would pass
supervisory review by Monarch. Then Crompton along with other registered Approved Persons
at CMLC would review the NAAF and loan documents for completeness and sign as the mutual
fund salesperson ostensibly servicing the accounts. Once the NAAF and loan documents were
signed by Crompton and other registered Approved Persons the documents would be returned to
the Underwriting Department for processing through Monarch.

30.
The clients were led to believe that the non-registered person was the mutual fund
salesperson responsible for servicing their account.

31.
On May 15, 2007, client NB attended the CMLC office and met with a non-registered
individual. The non-registered individual recommended the Leveraged Investment Strategy to
client NB. As part of the Leveraged Investment Strategy, Client NB borrowed $50,000 and
purchased ROC mutual funds with the proceeds of the loan. Crompton was the mutual fund
salesperson of record on the account.

32.
On August 14, 2007, clients DM and AM attended the CMLC office and met with a non-
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registered individual. The non-registered individual recommended the Leveraged Investment
Strategy to clients DM and AM. As part of the Leveraged Investment Strategy, Clients DM and
AM borrowed $99,999 and purchased ROC mutual funds with the proceeds of the loan.
Crompton was the mutual fund salesperson of record on the account.

33.
Staff of the MFDA interviewed clients NB and DM in May 2011. Clients NB and DM
confirmed that they had never met Crompton and believed that the non-registered individual was
the mutual fund salesperson responsible for servicing their account. In a review of the clients’
KYC information on file it was determined that the KYC information for clients NB, DM and
AM had been falsified without their knowledge or approval. Specifically, the KYC information
for clients NB, DM and AM had been inflated to ensure (or increase the likelihood) that the
Leveraged Investment Strategy recommended by the non-registered person and signed-off on by
Crompton would be approved by Monarch.

34.
Due to Crompton’s failure to cooperate with Staff’s investigation, as described in further
detail below, Staff was unable, at least as of the date of the Notice of Hearing respecting
Crompton, to determine the full nature and extent of the involvement of Crompton in the stealth
advising scheme and, in particular, what role, if any, Crompton played with respect to the
falsification of the clients’ KYC information. Crompton was the directing mind of CMLC and it
was Crompton along with Ms. Crompton who instructed both the registered and non-registered
CMLC staff who met with clients to have the clients sign the NAAF and loan documents in
blank without the KYC information filled out.

35.
We find that by engaging in the conduct described above, between May 2007 and August
2007, Crompton:

(a)
facilitated a stealth advising arrangement whereby non-registered persons
engaged in securities related business with clients on behalf of the Member,
contrary to MFDA Rules 1.1.1(c) and 2.1.1; and
(b)
failed to perform the necessary due diligence to learn the essential facts relative to
the clients to ensure that the investments and the leveraged investment strategy
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recommended to and implemented in the accounts of the clients was suitable for
the clients and in keeping with the clients’ investment objectives, contrary to
MFDA Rules 2.2.1 and 2.1.1.

Allegation 2 (Notice of Hearing Respecting Crompton): Failure to Cooperate

36.
In or around February 2010, Staff contacted Crompton to schedule his attendance at an
interview as part of Staff’s investigation into his activities while at Monarch. Staff was advised
by Crompton that he had retained counsel to represent him. Between March 2010 and August
2010, Staff and Crompton’s counsel subsequently communicated with respect to scheduling
Crompton’s attendance at an interview. Ultimately, on September 16, 2010, Crompton’s counsel
advised that she was no longer retained by Crompton. She also advised that it was her
understanding that Crompton would not be attending an interview with Staff.

37.
On September 22, 2010, Staff sent a letter to Crompton requesting his attendance at an
interview on October 21, 2010. Crompton failed to attend the interview and on October 26, 2010,
Staff wrote again to him requesting his attendance at an interview on November 25, 2010. The
letter was delivered to Crompton by personal service. On November 23, 2010, Crompton sent an
email to Staff, attaching a letter, in which he stated that he would not be attending the interview
on November 25, 2010. In the attached letter, he stated: “I am writing to inform you that I no
longer wish to retain or re-license myself with regards to the MFDA…” To date, Crompton has
failed to cooperate with Staff’s investigation.

38.
We find that beginning in or around September 2010, Crompton failed to attend an
interview requested by Staff during the course of an investigation, and thereby failed to
cooperate with the ongoing investigation, contrary to section 22.1 of MFDA By-law No. 1.

Allegation 4: (Notice of Hearing Respecting Ms. Crompton): Failure to Supervise and
Ensure Compliance

39.
As already reflected, in or around May 2007, CMLC hired two non-registered persons to
meet with clients at the York Mills Branch. The non-registered persons were not employees or
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agents of Monarch. The non-registered persons were trained and instructed by CMLC to present
the Leveraged Investment Strategy to interested individuals.

40.
The non-registered persons would meet with Monarch clients, obtain relevant
information from the clients, recommend the Leveraged Investment Strategy to the clients and
then complete the requisite documents, including Monarch new account opening documents and
investment loan applications, to facilitate the implementation of the Leveraged Investment
Strategy in the clients’ accounts.

41.
Ms. Crompton and Brad Crompton instructed the non-registered persons to get the clients
to sign the Monarch new account opening documents and the investment loan applications in
blank (i.e. without the client’s KYC information filled out). The documents would then be sent to
the CMLC Underwriting Department. The Underwriting Department would then populate the
KYC information in the documents in a manner which would ensure the documentation would
pass supervisory review by Monarch and meet any criteria imposed by the lenders. An Approved
Person at the York Mills Branch then reviewed the completed documentation for completeness
only and signed it as the mutual fund salesperson ostensibly servicing the accounts. In most
cases, the Approved Person who signed the documentation had never met with met with the
client; if the Approved Person had met with or spoken to the client briefly, the Approved Person
had not engaged in the account opening process with the client in any meaningful way. Once the
Monarch new account opening documents and investment loan applications had been signed by
the Approved Person, the documents were returned to the Underwriting Department to be
delivered to Monarch for processing.

42.
At all material times, the clients were led to believe and understood that the non-
registered persons at CMLC with whom they dealt were responsible for their accounts.

43.
On July 3, 2008, Monarch received a complaint from client MC. Adams was the mutual
funds salesperson assigned to the account. Between July and August 2008, Monarch and Ms.
Crompton exchanged a series of correspondence with respect to the complaint from client MC.

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44.
On September 4, 2008, the Ontario Securities Commission (“OSC”) received a complaint
from client DA. Henderson was the mutual funds salesperson assigned to client DA’s account.

45.
On or about September 5, 2008, Monarch became aware of eight investment loans
processed for clients of the York Mills Branch (as well as clients of Adams in Ottawa) with AGF
Trust Inc. that were in arrears. On September 5, 2008, Monarch stopped processing all pending
investment loans applications to AGF Trust received from the York Mills Branch (and Adams).

46.
On or about September 8, 2008, Monarch became aware of up to 25 clients associated
with the York Mills Branch (as well as with Adams in Ottawa) who may have had issues relating
to the repayment of their investment loans.

47.
On September 9, 2008, Monarch stopped processing all pending investment loan
applications to B2B Trust Inc. received from the York Mills Branch (and Adams). Monarch sent
a letter to Ms. Crompton dated September 9, 2008, advising that Monarch would not process any
further investment loan applications received from the York Mills Branch until all client issues
had been investigated and properly resolved. Monarch also stated that they would be conducting
a review of the York Mills Branch.

48.
On September 10, 2008, Monarch conducted a review of the York Mills Branch. During
the review, Monarch was advised by Ms. Crompton that:

a)
Despite being aware of issues related to the repayment of investment loans, she
had made limited attempts to contact the clients and/or made no attempt to resolve
the issues;
b)
She had failed to advise Monarch's Compliance Department of any client issues
relating to the repayment of investment loans; and
c)
She was aware that Brad Crompton, an unregistered person, was providing
investment advice with respect to leveraged investing with mutual funds.

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49.
On September 22, 2008, Monarch sent a letter to Brad Crompton, in his capacity as
President of CMLC (which operated the York Mills Branch), summarizing the compliance
deficiencies identified at the York Mills Branch during the review and setting out a timeline to
rectify the deficiencies. Monarch placed the York Mills Branch on strict supervision for a period
of six months and issued a warning letter to Ms. Crompton for inadequate branch supervision
and required her to undergo Branch Manager training. Monarch also requested confirmation
from Brad Crompton, in his capacity as the President of CMLC, that he would be responsible for
reimbursing all clients who had incurred, or would incur, losses, costs or fees relating to the
performance of their leveraged investments or any steps required to be taken to unwind the
leveraged investments.

50.
At all material times, Ms. Crompton was the designated branch manager responsible for
supervising trading activity at the York Mills Branch and ensuring that any business conducted
on behalf of Monarch at those locations was in compliance with Monarch's policies and
procedures, MFDA By-laws, Rules and Policies and applicable securities legislation.

51.
The deficiencies at the York Mills Branch were not addressed nor did Brad Crompton
confirm that CMLC would reimburse clients for any losses or costs incurred as a result of the
leveraged investment activity relating to CMLC, as set out in the September 22, 2008 letter.

52.
On October 20, 2008, Monarch terminated Ms. Crompton for failing to adequately
supervise investment activity and investment loans processed through the York Mills Branch
(including Adams’ activity in Ottawa).

53.
Due to Ms. Crompton’s failure to cooperate with Staff’s investigation, as described in
further detail below, Staff was unable to determine the full nature and extent of her involvement
in the CMLC activity described herein.

54.
We find that by engaging in the conduct described above, between May 2007 and
October 2008, Ms. Crompton, in her capacity as the designated branch manager, failed to
adequately supervise a branch and failed to ensure that the business conducted on behalf of the
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Member by Approved Persons at the branch was in compliance with applicable securities
legislation and the MFDA By-law and Rules, contrary to MFDA Rules 2.5.3(b), 2.1.1 and
MFDA Policy No. 2.

Allegation 5 (Notice of Hearing Respecting Ms. Crompton and Henderson): Failure to
Cooperate by Both Respondents

55.
In or around February 2010, Staff contacted Ms. Crompton and Henderson to schedule
their attendance for an interview as part of Staff’s investigation into their activities while at
Monarch. Staff was advised that Ms. Crompton and Henderson had retained the same counsel to
represent them.

56.
Between March 2010 and August 2010, Staff and counsel communicated with respect to
scheduling the attendance of Michelle Crompton and Henderson for an interview. Ultimately, on
September 16, 2010, counsel advised that he was no longer retained by Ms. Crompton and
Henderson. Counsel also advised that it was his understanding that Ms. Crompton and
Henderson would not be attending the scheduled interviews.

57.
On September 22, 2010, Staff sent letters to Henderson and Ms. Crompton requesting
their attendance for interviews on October 19 and 20, 2010. They failed to attend at their
respective interviews. On October 26, 2010, Staff wrote to them providing new dates for their
interviews. The letters were delivered to both of them by personal service.

58.
On November 22, 2010, Henderson sent an email to Staff to advise that he wished to
postpone the interview. Henderson wrote: “…I am no longer in the Mutual Fund industry, and I
currently do not intend to reinstate my license to sell Mutual Funds.” On November 23, 2010,
Staff replied to Henderson by email to advise that he was required to attend the interview, failing
which, the MFDA would consider initiating disciplinary proceedings against him.

59.
On November 23, 2010, Ms. Crompton sent an email to Staff, attaching a letter, in which
she stated that she would not be attending the interview on November 24, 2010. In the attached
letter, Ms. Crompton stated: “I am writing to inform you that I no longer wish to retain or re-
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license myself with regards to the MFDA…”

60.
To date, Ms. Crompton and Henderson have failed to cooperate with Staff’s
investigation.

61.
We find that beginning in or around September 2010, Ms. Crompton and Henderson
failed to attend an interview requested by Staff during the course of an investigation, and thereby
failed to cooperate with an ongoing investigation, contrary to section 22.1 of MFDA By-law No.
1.

62.
It is unnecessary for us to summarize the evidence of Adams or Ms. Siu for the purposes
of these Reasons. At this stage, it is sufficient to say that the evidence demonstrated, amongst
other things, that the failure of any of the three Respondents to cooperate meant that some of
their misconduct (later revealed) went undetected until it could no longer be prosecuted in
compliance with the existing limitation periods. That other misconduct remains relevant to the
issue of penalty.

CONCLUSION

63.
With one exception, we find it unnecessary to elaborate upon the Rules that were
contravened by the Respondents or discuss the existing jurisprudence with which we are
familiar. It is self-evident that, based on the findings we have made, the Rules cited by Staff in
the Notices of Hearing have been contravened.

64.
The one elaboration is this. Allegation 1(b) against Crompton and Allegation 4 against
Ms. Crompton are articulated as a failure to perform due diligence to ensure suitability and as a
failure to adequately supervise a branch office and ensure compliance respectively. These
contraventions are indeed supported by both the evidence and the Rules cited. However, we note
that one of the Rules cited in relation to each of these allegations is Rule 2.1.1. It provides more
generally, amongst other things, that each Approved Person of a Member shall (a) deal fairly,
honestly and in good faith with its clients; and observe high standards of ethics and conduct in
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the transaction of business.

65.
The facts in relation to Allegation 1(b) against Crompton and Allegation 4 against Ms.
Crompton reveal not only failures of due diligence and supervision, but deliberate dishonesty and
ethical violations of the utmost seriousness. On the totality of the evidence, we find that
Crompton and Ms. Crompton were knowingly parties to deliberate deception, which included the
falsification of documents to ensure approvals of otherwise unsuitable investment decisions.

ORDER

66.
Findings of professional misconduct are made in accordance with these Reasons as
against Crompton, Ms. Crompton and Henderson. The penalty hearing is to take place on April
15, 2015 commencing at 10 a.m. Although the Respondents are not entitled to further notice of
the proceedings, we have directed that Staff advise the Respondents, to the extent possible, of
what has transpired to date, including the Reasons of the Hearing Panel, the date set to address
penalty, and the opportunity for the Respondents to participate in the penalty hearing, should
they now choose to do so.

DATED this 26th day of March, 2015.

“Mark J. Sandler”
Mark J. Sandler

Chair

“Nick Pallotta”
Nick Pallotta

Industry Representative

“Selwyn Kossuth”
Selwyn Kossuth

Industry Representative

DM 418559 v2

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