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Notice of Hearing

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:

Amended Notice of Hearing
File No. 200834



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: Hill & Crawford Investment Management Group Ltd.
and Albert Rodney Hill



AMENDED NOTICE OF HEARING1

NOTICE is hereby given that a first appearance will take place by teleconference before
a hearing panel (the “Hearing Panel”) of the Regional Council of the Central Region of
the Mutual Fund Dealers Association of Canada (the “MFDA”) in the hearing room
located at 121 King Street West, Suite 1000, Toronto, Ontario on Friday, February 27,
2009 at 10:00 a.m., or as soon thereafter as the hearing can be held, concerning a
disciplinary proceeding commenced by the MFDA against Hill & Crawford Investment
Management Group Ltd. (“Hill & Crawford”) and Albert Rodney Hill (“Hill”).

DATED at Toronto this 31st day of December, 2008.

“Jason D. Bennett”

Jason D. Bennett
Corporate Secretary

Mutual Fund Dealers Association of Canada
121 King St. West, Suite 1000
Toronto, Ontario
M5H 3T9
Telephone: 416-943-7436
Fax: 416-361-9781
E-mail: [email protected]

1 Notice of Hearing amended on May 15, 2009.
Page 1 of 21

NOTICE is further given that staff of the MFDA (“Staff”) alleges the following
violations of the By-laws, Rules or Policies of the MFDA:
Allegation 1: Financial and Operational Requirements
(a) (i) In January 2005 Hill & Crawford made payments to Hill without obtaining the
prior written consent of MFDA Staff, contrary to the terms of a subordinated loan
agreement (“SLA”) between Hill & Crawford and Hill and the MFDA;
(ii) Between April and October 2005, Hill & Crawford, while designated in early
warning pursuant to MFDA Rule 3.4.2, made payments to Hill and Hill’s spouse
without obtaining the prior written consent of MFDA Staff, contrary to the terms
of a SLA between Hill & Crawford and Hill and the MFDA and contrary to
MFDA Rule 3.4.2(b)(iv) [Early Warning Requirements];
(b) In August and September 2006 and in August and September 2007, while
designated in early warning pursuant to MFDA Rule 3.4.2 and subject to
additional early warning restrictions imposed by MFDA Staff pursuant to MFDA
Rule 3.4.3, Hill & Crawford opened 3 new client accounts and hired 2 new
Approved Persons, contrary to MFDA Rule 3.4.3 [Early Warning Restrictions];
(c) Between Since February 2007 and December 2008, Hill & Crawford has failed to
consistently maintain minimum capital of $50,000 as required for a Level II
dealer and risk adjusted capital greater than zero, contrary to MFDA Rule 3.1.1.
(d) Since January 2, 2009, the Respondents have failed to comply with restrictions
and requirements that were imposed on Hill & Crawford by Staff of the MFDA
pursuant to MFDA Rule 3.4.3. Specifically, the Respondents failed to:
(i) cease opening new client accounts;
(ii) notify all Approved Persons of the early warning restrictions that had
been imposed on Hill & Crawford; and
(iii) provide Staff of the MFDA with a copy of correspondence to
Approved Persons of Hill & Crawford informing them that no new client
accounts could be opened after January 2, 2009.
Page 2 of 21

Allegation 2: Between August 2006 and March 2007, Hill & Crawford failed to comply
with the terms of an Agreement and Undertaking, dated October 25, 2005, to resolve
compliance deficiencies identified during an MFDA compliance examination, thereby
engaging the jurisdiction of the Hearing Panel to impose a penalty on Hill & Crawford
for failing to carry out an agreement with the MFDA, pursuant to section 24.1.2(i) of
MFDA By-Law No. 1.
Allegation 3: In April 2007, Hill & Crawford was found to be in possession of eight
blank pre-signed forms in respect of six client accounts, contrary to MFDA Rule 2.1.1.

Allegation 4: Between Since October 2005 and March 2007, Hill, in his capacity as
President, Chief Compliance Officer and sole shareholder of Hill & Crawford, engaged in
conduct contrary to MFDA Rule 2.1.1(b) and (c) by failing to ensure that Hill &
Crawford:
(a) complied with the terms of the Agreement and Undertaking, dated October 25,
2005; and
(b) complied with the financial and operational requirements of MFDA Rules 3.1.1,
3.4.2 and 3.4.3.
PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and
intended to be relied upon by Staff at the hearing:
Registration History
1.
Hill & Crawford is registered as a mutual fund dealer in Ontario and as a mutual
fund dealer and a scholarship plan dealer in British Columbia. Hill & Crawford became a
Member of the MFDA on March 4, 2003.
2.
Hill is the President, Chief Compliance Officer and sole shareholder of Hill &
Crawford. Hill is registered as an officer and director and as a compliance officer in
Ontario and British Columbia.
Page 3 of 21

Allegation 1: Contraventions of Financial and Operational Requirements
(a) Chronology of Early Warning Designations and Additional Early Warning
Restrictions
3.
As set out in more detail below, since Hill & Crawford became a Member of the
MFDA, it has frequently failed to maintain sufficient risk adjusted capital (“RAC”) to
avoid triggering the early warning tests set out in MFDA Rule 3.4.2(a). Consequently,
Hill & Crawford has been designated in early warning during the following periods:
(a) from July 7, 2003 to September 10, 2003;
(b) from June 22, 2004 to January 4, 2005;
(c) from February 22, 2005 to December 8, 2006; and
(d) from May 9, 2007 to the present.
4.
On July 7, 2003, shortly after becoming a Member of the MFDA, Hill &
Crawford was designated in discretionary early warning by Staff pursuant to MFDA Rule
3.4.2(a)(v) due to concerns about Hill & Crawford’s capital, profitability and liquidity
positions.
5.
On September 10, 2003, Hill & Crawford was removed from discretionary early
warning by Staff after entering into a SLA dated September 3, 2003, pursuant to which
Hill loaned Hill & Crawford $90,000.
6.
On June 22, 2004, Hill & Crawford was designated in early warning pursuant to
MFDA Rule 3.4.2(a)(iii) [profitability concerns] after its loss for the quarter ending
March 31, 2004 exceeded its RAC.
7.
On October 5, 2004, Hill & Crawford, while designated in early warning and with
the knowledge and consent of Staff, attempted to address its RAC deficiency by entering
into a revised SLA with Hill pursuant to which Hill increased his loan to Hill & Crawford
to a total of $94,223. The terms of the revised SLA, as approved by Staff, prohibited Hill
& Crawford from repaying Hill directly or indirectly any amount of the loan without first
obtaining the prior written consent of Staff.
Page 4 of 21

(b) Payments Contrary to Terms of SLA and Early Warning Requirements
8.
On January 31, 2005, Hill & Crawford made a partial loan repayment to Hill in
the amount of $4,044 without obtaining the prior written consent of Staff, contrary to the
terms of the SLA. Staff subsequently asked Hill & Crawford to reclassify the repayment
as a shareholder advance on its FQR for January 2005. As a result of making this
payment/advance, Hill & Crawford’s RAC fell below zero and Hill & Crawford was
therefore capital deficient and, as a result, was designated in early warning pursuant to
MFDA Rule 2.4.2(a)(i) on February 22, 2005, as described in the “Chronology” above.
9.
In April 2005, while designated in early warning, Hill & Crawford made a $5,267
advance to Hill without first obtaining the prior written consent of Staff, contrary to terms
of the SLA and the early warning restrictions applicable to Hill & Crawford under
MFDA Rule 3.4.2(b)(iv).
10.
In May, June and July 2005, while still designated in early warning, Hill &
Crawford made additional payments to Hill, described on its monthly FQRs as “advance
to shareholder” and “management wages”, without obtaining the prior written consent of
Staff, contrary to the terms of the SLA and the early warning restrictions applicable to
Hill & Crawford under MFDA Rule 3.4.2(b)(iv).
11.
In September and October 2005, while still designated in early warning, Hill &
Crawford made payments to the spouse of Hill, and further partial loan repayments to
Hill, without obtaining the prior written consent of Staff, contrary to the terms of the SLA
and the early warning restrictions applicable to Hill & Crawford under MFDA Rule
3.4.2(b)(iv).2
(c) Failure to file monthly FQRs in a timely manner
12.
Between February 2006 and August 2006, while designated in early warning, Hill
& Crawford failed to submit monthly FQRs for the seven month period January to July
2006 inclusive in a timely manner, contrary to MFDA Rule 3.4.2(b)(v) [Early Warning
Requirements] and MFDA Rule 3.5.1 [Monthly Filing Requirements].

2 Hill & Crawford made these payments prior to entering into the Agreement and Undertaking on October
25, 2005. MFDA Staff first learned of the payments in November 2005.

Page 5 of 21

13.
In October 2006, Staff completed a review of the FQRs for the period January to
July 2006 which Hill & Crawford had subsequently filed.
14.
On October 27, 2006, Staff issued a warning letter to Hill & Crawford for
apparently breaching its obligations to file FQRs on a timely basis.
(d) Contraventions of Additional Early Warning Restrictions
15.
While designated in early warning and subject to additional early warning
restrictions imposed by Staff pursuant to MFDA Rule 3.4.3, Hill & Crawford:
(a)
opened a new account for client EO on August 8, 2006;
(b)
opened a new account for client RP on September 28, 2006;
(c)
hired a new Approved Person, FS, on October 10, 2006;
(d)
hired a new Approved Person, MS, on August 22, 2007; and
(e)
hired a new Approved Person, KA, on September 7, 2007.
All of which conduct was contrary to the additional early warning restrictions imposed by
Staff on Hill & Crawford pursuant to MFDA Rule 3.4.3.
(e) Failure to Maintain Minimum Capital and Risk Adjusted Capital Greater Than
Zero
16.
In its FQR for February 2007, Hill & Crawford reported positive RAC in the
amount of $15,679.
17.
During a sales compliance examination conducted by Staff in the Spring of 2007,
Staff determined that Hill & Crawford actually had a RAC deficiency in the amount of
approximately $15,750 and had failed to maintain:
(a) sufficient books and records to substantiate the balances reported in its
unaudited FQR for the month ended February 28, 2007;
(b) RAC greater than zero; and
(c) the minimum capital required of a Level 2 dealer ($50,000), contrary to
MFDA Rule 3.1.1.
18.
Hill & Crawford was notified by Staff on June 28, 2007 that it had triggered a
capital deficiency and would therefore continue to be designated in early warning. Staff
Page 6 of 21

requested that Hill & Crawford inject $26,000 in capital by July 6, 2007 in order for Hill
& Crawford to maintain adequate regulatory capital, which it did on July 10, 2007.
19.
In October and November 2007 and in March 2008, Hill & Crawford failed to
maintain sufficient RAC to avoid triggering the profitability test set out in MFDA Rule
3.4.2(a)(iii).
20.
In every month since May 2008, Hill & Crawford has failed to maintain sufficient
RAC to avoid triggering multiple early warning tests set out in MFDA Rule 3.4.2(a).
21.
Since July 2008, Hill & Crawford has failed to maintain RAC greater than zero
and the minimum capital required of a Level 2 dealer ($50,000), contrary to MFDA
Rule 3.1.1.
22.
On January 2, 2009, Hill & Crawford was informed by Staff of the MFDA that as
a result of its failure to rectify its capital deficiency between July and December 2008, the
MFDA was imposing additional early warning restrictions on Hill & Crawford pursuant
to MFDA Rule 3.4.3 including a prohibition on the opening of new client accounts.
23.
After January 2, 2009, Hill & Crawford failed to provide evidence requested by
Staff of the MFDA indicating that Hill & Crawford had provided its Approved Persons
with written notification of the early warning restrictions.
24.
In February 2009, Hill provided Hill & Crawford with an additional $30,000
injection of capital in order to rectify Hill & Crawford’s RAC deficiency. However, the
FQR for the month ended February 28, 2009 which was filed by Hill & Crawford on
March 20, 2009 indicated that in spite of the $30,000 capital injection, Hill & Crawford
had a RAC deficiency in the amount of $12,942 as a result of continuing operating losses.
25.
During a visit by MFDA Staff to the office premises of Hill & Crawford on
March 26, 2009, MFDA Staff obtained evidence that Hill & Crawford had opened 102
new client accounts after January 2, 2009 in contravention of the MFDA Rule 3.4.3 early
warning restrictions.

Page 7 of 21

Allegation 2: Breach of Agreement and Undertaking
22.26. In January 2005, Staff conducted a first round compliance examination of Hill &
Crawford to assess its compliance with MFDA Rules, By-laws and Policies during the
period January 1, 2004 to December 31, 2004 (the “First Examination”). The results of
the First Examination were summarized and delivered to Hill & Crawford in a report
dated June 14, 2005.
23.27. The First Examination identified numerous compliance deficiencies which
required immediate corrective action by Hill & Crawford.
24.28. In May 2005, MFDA Compliance Staff referred Hill & Crawford to MFDA
Enforcement Staff for possible disciplinary proceedings in respect of the compliance
deficiencies identified in the First Examination.
25.29. On October 25, 2005, Hill & Crawford entered into an Agreement and
Undertaking with Staff in lieu of Staff commencing disciplinary proceedings against it in
respect of the deficiencies identified during the First Examination. Under the terms of the
Agreement and Undertaking, Hill & Crawford agreed to:
(a) resolve the deficiencies identified in the First Examination to the satisfaction
of Staff;
(b) retain a consultant at Hill & Crawford’s expense to assist it in resolving the
deficiencies identified in the First Examination;
(c) cease making loan re-payments to Hill without the prior written consent of
Staff and to otherwise comply with the terms of the SLA; and
(d) comply with the early warning restrictions in MFDA Rule 3.4.2(b)(iv) for so
long as Hill & Crawford remained designated in early warning status.
26.30. Under the terms of the Agreement and Undertaking, Hill & Crawford
acknowledged and agreed that any breach of the Agreement and Undertaking may result
in disciplinary proceedings being taken against it with respect to either the compliance
deficiencies identified during the First Examination or the breach of the Agreement and
Undertaking itself, or both.
Consultant Retained to Resolve Compliance Deficiencies
27.31. On February 6, 2006, Hill & Crawford retained a consultant to assist it in
Page 8 of 21

resolving the compliance deficiencies identified during the First Examination, as required
under the terms of the Agreement and Undertaking.
28.32. Between February 6, 2006 and December 6, 2006, the consultant evaluated Hill &
Crawford’s compliance program, made recommendations to resolve the First
Examination deficiencies, monitored and tested Hill & Crawford’s implementation of the
its recommendations, and reported its findings to Staff.
29.33. On December 6, 2006, after conducting some additional testing at the request of
Staff, the consultant advised Staff that Hill & Crawford had resolved the compliance
deficiencies identified during the First Examination and that in her opinion, no further
action was required.
30.34. On December 8, 2006, Staff notified Hill & Crawford that, notwithstanding the
consultant’s conclusions, several changes to Hill & Crawford’s compliance regime had
not been implemented in accordance with the consultant’s action plan or in compliance
with MFDA requirements to the satisfaction of Staff, as required by section 2(a) of the
Agreement and Undertaking.
31.35. As a result, Staff advised Hill & Crawford that it would shortly be conducting a
second compliance examination of Hill & Crawford, at which time Staff would assess
Hill & Crawford’s overall compliance with the Agreement and Undertaking and MFDA
By-laws, Rules and Policies and then determine whether enforcement proceedings were
warranted.
The Second Compliance Examination
32.36. In April 2007, Staff conducted a second round compliance examination of Hill &
Crawford to assess its compliance with MFDA Rules, By-laws and Policies during the
period August 1, 2006 and March 31, 2007 (the “Second Examination”). The results of
the Second Examination were summarized and delivered to Hill & Crawford in a report
dated July 30, 2007.
33.37. The Second Examination revealed that several deficiencies identified during the
First Examination had not been resolved by Hill & Crawford in accordance with the
Page 9 of 21

terms of the Agreement and Undertaking (the “Repeat Deficiencies”).
34.38. Each of the Repeat Deficiencies constitutes a breach of the Agreement and
Undertaking, thereby engaging the jurisdiction of the Hearing Panel to impose a penalty
on Hill & Crawford for failing to carry out an agreement with the MFDA, pursuant to
section 24.1.2(i) of MFDA By-Law No. 1.
The Repeat Deficiencies
(i) Failure to Maintain Trade Blotters
35.39. The First Examination revealed that Hill & Crawford did not keep trade blotters
or other records containing an itemized daily record of all purchases and sales of
securities, including the name of the securities, the class or designation of the securities,
the number or value of the securities, the unit and aggregate purchase or sale price and
the trade date, as were necessary for the proper recording of its business transactions and
financial affairs, contrary to MFDA Rule 5.1(a) [trade blotters or other records].
36.40. In accordance with the consultant’s action plan dated October 17, 2006, Hill &
Crawford advised Staff that it intended to resolve this deficiency by recording all daily
trading activity on an Excel spreadsheet it had created for this purpose.
37.41. The Second Examination revealed the following:
(a) there was no evidence that Hill & Crawford used any form of trade blotter in
August and September 2006;
(b) there was no evidence that Hill & Crawford used its Excel spreadsheet to
record trading activity after October 17, 2006; and
(c) after October 17, 2006, Hill & Crawford began using trade blotters produced
by third party service providers, first FundSERV Inc. and then, commencing
December 2006, MRS Inc., in an attempt to meet the requirements of MFDA
Rule 5.1(a).
38.42. The trade blotters produced by MRS Inc. were insufficient to meet the
requirements of MFDA Rule 5.1(a) because they did not record all trade transactions
including trades in RESP accounts and “off-book” trades.3

3 For the purposes of this Notice of Hearing, an “off-book” trade refers to a trade made by a client directly
with a mutual fund company instead of through Hill & Crawford.
Page 10 of 21

39.43. Hill & Crawford’s failure to keep any form of trade blotter between August and
September 2006 inclusive and its subsequent failure to implement and maintain a trade
blotter which recorded all types of trading activity during the review period was contrary
to MFDA Rule 5.1(a) and therefore constituted a repeat deficiency and breach of the
Agreement and Undertaking.
(ii) Failure to Maintain Records of Trade Reconciliations
40.44. The First Examination revealed that Hill & Crawford did not maintain records of
all of its compliance and supervisory activities, including records of trade reconciliations
conducted in accordance with MFDA Policy 4 [Internal Control Policy Statements],
contrary to MFDA Rules 2.5.4 [Maintenance of Supervisory Review Documentation] and
5.6 [Record Retention]. Hill & Crawford advised Staff during the First Examination that
any records it used to conduct trade reconciliations were destroyed after use.
41.45. In accordance with the consultant’s action plan dated October 17, 2006, Hill &
Crawford advised Staff that it intended to resolve this deficiency by performing daily
trade reconciliations in which it “pulled up” the electronic record of each client’s account
as maintained on-line by the mutual fund company(s) and compared that information to
the Excel spreadsheet maintained by Hill & Crawford, as described above. Hill &
Crawford would rectify and document any discrepancies it detected, and evidence of
these trade reconciliations would be maintained for seven years.
42.46. During the Second Examination, Hill & Crawford advised Staff that since
approximately December 1, 2006 it had been performing daily trade reconciliations by
comparing MRS Inc. trade blotters (instead of its own Excel spreadsheet) to the on-line
mutual fund company records for each of its clients.
43.47. The Second Examination revealed the following:
(d) there was no evidence that Hill & Crawford used any form of trade blotter in
August and September 2006, such that Hill & Crawford could not have
conducted daily trade reconciliations in accordance with MFDA Policy 4
during this period;
(e) the MRS Inc. trade blotters relied upon by Hill & Crawford commencing
December 2006 were not intended or designed by MRS Inc. to capture all of
Hill & Crawford’s trading activity and were therefore insufficient to enable
Page 11 of 21

Hill & Crawford to conduct daily trade reconciliations in accordance with
MFDA Policy 4; and
(f) in response to a request by Staff, Hill & Crawford was unable to produce any
evidence that it had performed trade reconciliations during the review period.
44.48. Hill & Crawford’s failure to maintain evidence of trade reconciliations in
accordance MFDA Policy 4 during the review period was contrary to MFDA Rules 2.5.4
and 5.6 and therefore constituted a repeat deficiency and breach of the Agreement and
Undertaking.
45.49. To the extent that Hill & Crawford did not maintain a trade blotter and evidence
of trade reconciliations in the manner described above, Hill & Crawford was unable to
properly review trading activity, contrary to MFDA Rule 2.5 [Minimum Standards of
Supervision].
(iii) Failure to Issue Account Statements from Own Books & Records
46.50. The First Examination revealed that clients of Hill & Crawford serviced by one of
its Approved Persons did not receive annual client account statements for the 2003
calendar year, contrary to MFDA Rule 5.3.1(a) [Delivery of Account Statement- client
name account].
47.51. In accordance with the consultant’s action plan dated October 17, 2006, Hill &
Crawford advised Staff that it intended to resolve this deficiency by ensuring that it
mailed annual account statements to all clients whose accounts were held in client name
within 30 days of calendar year-end.
48.52. The Second Examination revealed that Hill & Crawford did not produce and issue
annual account statements generated from its own books and records for clients whose
accounts were held in client name. Instead, the Second Examination revealed that Hill &
Crawford relied on and used account statements produced by individual mutual fund
companies for each client, which it then modified by adding Hill & Crawford’s name and
logo, to create the appearance that Hill & Crawford was generating annual account
statements from its own books and records and sending them to all clients whose
accounts were held in client name.
Page 12 of 21

49.53. Hill & Crawford’s failure to send annual account statements produced from its
own books and records to all clients whose accounts were held in client name was
contrary to MFDA Rule 5.3.1(a) and therefore constituted a repeat deficiency and breach
of the Agreement and Undertaking.
(iv) Failure to Maintain Financial Books and Records
50.54. The First Examination revealed that Hill & Crawford did not maintain, or could
not produce supporting documentation in respect of, the following financial books and
records, contrary to MFDA Rules 5.1 [Requirement for Records] and 5.6 [Record
Retention]:
(b) general ledger for the months ending February, June and November 2004;
(c) journal entries for the months of February, June and November 2004;
(d) trial balance as at February 28, 2004;
(e) most recent year-end notice of assessment from Canada Revenue Agency;
(f) list of assets for February, June and November 2004;
(g) commissions payable to an Approved Person as at November 30, 2004;
(h) receivables from mutual fund companies for February, June and November
2004; and
(i) variable compensation expense as at November 30, 2004.
51.55. In addition, Hill & Crawford advised Staff that it only prepared its financial books
and records on an annual basis at fiscal year-end, rather than on an ongoing basis.
52.56. In accordance with the consultant’s action plan dated October 17, 2006, Hill &
Crawford advised Staff that it intended to resolve this deficiency by implementing an
accounting program that was capable of maintaining and producing all required records
and that it would begin entering the supporting information into the accounting program
at the end of each month and would send that information to its accountant for monthly
verification.
53.57. The Second Examination revealed that Hill & Crawford was unable to provide the
following financial books, records or information to Staff:
(a) a detailed monthly ledger for the period October 2006 to March 2007;
Page 13 of 21

(b) commission payables to Approved Persons as at February 28, 2007;
(c) copies of its responses to written inquiries from MFDA Staff regarding Hill &
Crawford’s FQR filings from January 1, 2007 to July 30, 2007;
(d) supporting documentation in respect of numerous entries in its trial balance or
FQR;
54.58. In addition, Staff found no evidence that Hill & Crawford prepared its financial
books and records on a monthly basis and observed that the trial balance provided by Hill
& Crawford’s accountant for the months of October 2006 to February 2007 was
unbalanced.
55.59. Hill & Crawford’s failure to keep such books, records and other documents as
were necessary for the proper recording of Hill & Crawford’s business transactions and
financial affairs was contrary to MFDA Rules 5.1 and 5.6 and therefore constituted a
repeat deficiency and breach of the Agreement and Undertaking.
(v) Failure to Comply with FQR Requirements
56.60. The First Examination revealed that Hill & Crawford did not comply in all
respects with the requirements set out in Note 1 to the MFDA’s FQR, including in
particular the requirement to prepare its financial statements in accordance with generally
accepted accounting principles (“GAAP”).
57.61. In accordance with the consultant’s action plan dated October 17, 2006, Hill &
Crawford advised Staff that it intended to resolve this deficiency by reviewing all FQR
items on a monthly basis to ensure their accuracy and completeness and maintaining all
records used for this purpose for a period of seven years, as required by MFDA Rule 5.6
[Record Retention].
58.62. The Second Examination revealed that Hill & Crawford’s FQR for February 2007
was deficient in the following respects:
(b) There was inadequate documentation to support the receivable owing from its
carrying broker/mutual fund account. Based on the limited records available at
Hill & Crawford, the receivable was understated by $715, meaning its RAC
was understated by $715;
Page 14 of 21

(c) Hill & Crawford did not properly accrue its variable compensation payable,
leading to its RAC being overstated by $13,823;
(d) Hill & Crawford did not properly accrue for wages, benefits and management
fees payable, leading to its RAC being overstated by $11,012;
(e) Hill & Crawford did not include the incorporation cost in its fixed assets
balance, leading to its fixed asset balance being understated by $850 (no
impact on RAC); and
(f) Statement D reported that Hill & Crawford had three Approved Persons,
whereas the National Registration Database indicated that Hill & Crawford
had four Approved Persons (no impact on RAC).
59.63. Hill & Crawford’s failure to comply in all respects with the requirements set out
in Note 1 to the MFDA’s FQR constituted a repeat deficiency and a breach of the
Agreement and Undertaking.
(vi) Failure to Prepare Bank Reconciliations
60.64. The First Examination revealed that Hill & Crawford did not prepare written bank
reconciliations on at least a monthly basis and could not produce evidence that a senior
management official of Hill & Crawford had reviewed, dated and approved all bank
reconciliation items, contrary to MFDA Policy 4.
61.65. In accordance with the consultant’s action plan dated October 17, 2006, Hill &
Crawford advised Staff that it intended to resolve this deficiency by having its accountant
prepare bank reconciliations on a monthly basis, which the accountant would then send to
Hill & Crawford in a timely manner for review and approval. Hill & Crawford also
advised Staff that it would maintain copies of all such reviewed and approved bank
reconciliations for a period of seven years, as required by MFDA Rule 5.6.
62.66. The Second Examination revealed that Hill & Crawford did not prepare, review
or approve bank reconciliations on a monthly basis or otherwise.
63.67. Hill & Crawford’s failure to prepare, review and approve written bank
reconciliations on at least a monthly basis, identifying and dating all reconciled items,
was contrary to MFDA Policy 4 and therefore constituted a repeat deficiency and breach
of the Agreement and Undertaking.
Page 15 of 21

Allegation 3: Possession of Blank Pre-Signed Forms
64.68. The Second Examination revealed that Hill & Crawford had in its possession
eight blank pre-signed forms in respect of six client accounts serviced by Hill, contrary to
MFDA Rule 2.1.1 [Standard of Conduct]. MFDA Staff found blank pre-signed forms in
the following client files:
Client
Blank Pre-Signed Forms
Name
JB
One (1) blank pre-signed Purchase Application form.
SB
Two (2) MRS Deregistration/Withdrawal Request forms.
WB
Two (2) blank pre-signed Purchase Application forms.
DB
One (1) blank pre-signed MRS Transfer Authorization form.
DF
One (1) blank pre-signed MRS Mutual Fund Trade Ticket.
AS
One (1) blank pre-signed MRS Transfer Authorization form.
65.69. By obtaining and possessing blank pre-signed forms, Hill & Crawford failed to
observe high standards of ethics in the conduct of business and engaged in business
conduct or practice that was unbecoming, contrary to MFDA Rule 2.1.1(b) and (c).
Allegation 4: Conduct Unbecoming and Detrimental to the Public Interest
66.70. Between Since October 2005 and March 2007, Hill, in his capacity as the
President, Chief Compliance Officer and sole shareholder of Hill & Crawford, engaged in
business conduct or practice that was unbecoming or detrimental to the public interest
contrary to MFDA Rule 2.1.1(b) and (c) by failing to ensure that Hill & Crawford:
(a)
complied with the terms of the Agreement and Undertaking, dated
October 25, 2005; and
(b)
complied with the financial and operational requirements set out in MFDA
Rules 3.1.1, 3.4.2 and 3.4.3.
MFDA Application For An Order Pursuant To S. 24.3 Of MFDA By-Law No. 1
71.
On March 20, 2009, Hill & Crawford filed an FQR for the month ended
February 28, 2009 which indicated that Hill & Crawford was continuing to sustain
substantial operating losses and had failed to rectify its RAC deficiency in spite of a
$30,000 capital injection from Hill in February 2009.
Page 16 of 21

72.
MFDA Staff attended at the office premises of Hill & Crawford on Thursday,
March 26, 2009. During that attendance:
(a)
Hill was unable to produce for inspection copies of books, records and
other documents associated with client accounts that the Member is
required to maintain at its office;
(b)
Hill was unable to produce evidence that he or any other individual was
adequately fulfilling Hill & Crawford’s trade supervision obligations; and
(c)
Hill provided MFDA Staff with a letter indicating that Hill & Crawford
intended to resign from membership in the MFDA on May 15, 2009.
73.
On March 30, 2009, MFDA Staff sent Hill additional requests for information
required to facilitate Hill & Crawford’s resignation from the MFDA and confirm the
extent to which Hill & Crawford was fulfilling its regulatory and financial obligations
pending the completion of the resignation process. MFDA Staff requested responses
from Hill & Crawford on or before April 3, 2009 but no responses were received.
Subsequently, MFDA Staff sent follow-up requests for the information.
74.
The Respondents failed to provide sufficient or timely responses to the requests of
MFDA Staff and, in particular, failed to provide information required to demonstrate that
the Respondents had an adequate plan to facilitate Hill & Crawford’s resignation.
75.
Consequently, on April 22, 2009, a Hearing Panel granted an application brought
by MFDA Staff for an Order pursuant to s. 24.3 of MFDA By-law No. 1 immediately
suspending the authority of the Respondents to conduct securities related business and
deal with members of the public.
NOTICE is further given that the Respondents Hill and Hill & Crawford shall be entitled
to appear and be heard and be represented by counsel or agent at the hearing and to make
submissions, present evidence and call, examine and cross-examine witnesses.
NOTICE is further given that MFDA By-laws provide that if, in the opinion of the
Hearing Panel, a Member:
has failed to carry out any agreement with the MFDA;
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has failed to meet any liabilities to another Member or to the public;
has engaged in any business conduct or practice which the Hearing Panel in its
discretion considers unbecoming a Member or not in the public interest;
has ceased to be qualified as a Member by reason of the ownership, integrity,
solvency, training or experience of the Member or any of its Approved Persons or
other employees or agents, or any person having an ownership interest in the
capital or indebtedness of the Member;
has failed to comply with or carry out the provisions of any of the By-laws, Rules
or Policies of the MFDA; or
has failed to comply with or carry out the provisions of any applicable federal or
provincial statute relating to its business or of any regulation or policy made
pursuant thereto;
the Hearing Panel has the power to impose any one or more of the following penalties:
(a) a reprimand;
(b) a fine not exceeding the greater of:
(i)
$5,000,000.00 per offence; and
(ii)
an amount equal to three times the profit obtained or loss avoided by the
Member as a result of committing the violation;
(c) suspension of the rights and privileges of the Member (and such suspension may
include a direction to the Member to cease conducting securities related business)
for such specific period and upon such terms as such Hearing Panel may
determine, or, if the rights and privileges have already been suspended under
Section 24.3, the continuation of such suspension (including a prohibition on the
Member conducting securities related business) for such specified period and
upon such terms as such Hearing Panel may determine;
(d) termination of the rights, privileges and Membership of the Member;
(e) expulsion of the Member from the MFDA;
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(f) such terms and conditions on Membership of the Member as may be considered
appropriate by the Hearing Panel;
(g) imposition of a monitor to oversee and/or report on the Member’s activities; and
(h) directions for the orderly transfer of client accounts from the Member.
NOTICE is further given that MFDA By-laws provide that if, in the opinion of the
Hearing Panel, an Approved Person:
has failed to carry out any agreement with the MFDA;
has failed to comply with or carry out the provisions of any federal or provincial
statute relating to the business of the Member or of any regulation or policy made
pursuant thereto;
has failed to comply with the provisions of any By-law, Rule or Policy of the
MFDA;
has engaged in any business conduct or practice which such Regional Council in
its discretion considers unbecoming or not in the public interest; or
is otherwise not qualified whether by integrity, solvency, training or experience,
the Hearing Panel has the power to impose any one or more of the following penalties:
(a) a reprimand;
(b) a fine not exceeding the greater of:
(i) $5,000,000.00 per offence; and
(ii) an amount equal to three times the profit obtained or loss avoided by such
person as a result of committing the violation;
(c) suspension of the authority of the person to conduct securities related business for
such specified period and upon such terms as the Hearing Panel may determine;
(d) revocation of the authority of such person to conduct securities related business;
(e) prohibition of the authority of the person to conduct securities related business in
any capacity for any period of time;
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(f) such conditions of authority to conduct securities related business as may be
considered appropriate by the Hearing Panel;
NOTICE is further given that the Hearing Panel may, in its discretion, require that the
Respondents or either Respondent pay the whole or any portion of the costs of the
proceedings before the Hearing Panel and any investigation relating thereto.
NOTICE is further given that each Respondent must serve a Reply on Enforcement
Counsel and any other party named in the Notice of Hearing and file a Reply with the
Corporate Secretary within twenty (20) days from the date of service of this Notice of
Hearing.
A Reply shall be served upon Enforcement Counsel at:

Mutual Fund Dealers Association of Canada

121 King Street West

Suite 1000

Toronto, ON M5H 3T9

Attention: Shelly Feld

Fax: 416-361-9073

Email: [email protected]
A Reply shall be filed by:
(a) providing 4 copies of the Reply to the Corporate Secretary by personal delivery,
mail or courier to:
The Mutual Fund Dealers Association of Canada
121 King Street West
Suite 1000
Toronto, ON M5H 3T9
Attention: Office of the Corporate Secretary ; or
(b) transmitting 1 copy of the Reply to the Corporate Secretary by fax to fax number
416-361-9781, provided that the Reply does not exceed 16 pages, inclusive of the
covering page, unless the Corporate Secretary permits otherwise; or
(c) transmitting 1 electronic copy of the Reply to the Corporate Secretary by e-mail
at [email protected].
A Reply may either:
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(a)
specifically deny (with a summary of the facts alleged and intended to be
relied upon by the Respondent, and the conclusions drawn by the Respondent
based on the alleged facts) any or all of the facts alleged or the conclusions
drawn by the MFDA in the Notice of Hearing; or
(b)
admit the facts alleged and conclusions drawn by the MFDA in the Notice of
Hearing and plead circumstances in mitigation of any penalty to be assessed.
NOTICE is further given that the Hearing Panel may accept as having been proven any
facts alleged or conclusions drawn by the MFDA in the Notice of Hearing that are not
specifically denied in the Reply.
NOTICE is further given that if either Respondent fails:
(a) to serve and file a Reply; or
(b) attend at the hearing specified in the Notice of Hearing, notwithstanding that a
Reply may have been served,
the Hearing Panel may proceed with the hearing of the matter on the date and the time
and place set out in the Notice of Hearing (or on any subsequent date, at any time and
place), without any further notice to and in the absence of that Respondent, and the
Hearing Panel may accept the facts alleged or the conclusions drawn by the MFDA in the
Notice of Hearing as having been proven to the extent that such allegations concern that
Respondent and may impose on that Respondent any of the penalties described in the
By-Laws.
End.

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