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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:

Notice of Hearing
File No. 201222


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: Edgar Mahilum



NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a
hearing panel of the Central Regional Council (the “Hearing Panel”) 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 August 9, 2012 at 10:00 a.m. (Eastern), or as soon thereafter as the
hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against
Edgar Mahilum (the “Respondent”).

DATED this 22nd day of June, 2012.

“Jason D. Bennett”

Jason D. Bennett

Corporate Secretary

Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario
M5H 3T9
Telephone: 416-943-7431
Facsimile: 416-361-9781
Email: [email protected]

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NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules
or Policies of the MFDA:

Allegation #1: Between January 1, 2004 and December 31, 2008, the Respondent engaged in
securities related business that was not carried on for the account and through the facilities of the
Member by recommending, selling or facilitating the sale of investments in the total amount of
approximately $375,000 to client PS and individuals BR and GB outside the Member, contrary
to MFDA Rules 1.1.1(a) and 2.1.1.

Allegation #2: On or about September 5, 2008, the Respondent provided false and misleading
information to the Member in response to the Member’s inquiry regarding a client redemption,
thereby failing to observe high standards of ethics and conduct in the transaction of business and
be of such character and business repute as is consistent with the standards prescribed by MFDA
Rule 2.1.1.

Allegation #3: Commencing on or about October 19, 2011, the Respondent has failed to provide
documents and information as requested by MFDA Staff during the course of an investigation,
contrary to section 22 of MFDA By-law No. 1.

PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and intended to be
relied upon by the MFDA at the hearing:

Registration History

1.
Between October 30, 2006, and on or about October 7, 2010, the Respondent was
registered in Ontario as a mutual fund salesperson with Investors Group Financial Services Inc.
(“Investors Group”), a Member of the MFDA.

2.
On or about October 7, 2010, the Respondent was terminated by Investors Group as a
result of the events described herein.

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3.
The Respondent was previously registered in Ontario:

(a) between January 2006 and October 2006 as a mutual fund representative with BMO
Nesbitt Burns Inc.;1
(b) between October 2003 and November 2005 as a mutual fund salesperson with
BMO Investments Inc. (“BMOII”), a Member of the MFDA; and
(c) between December 1995 and June 2003 as a mutual fund salesperson with another
mutual fund dealer.

4.
The Respondent is not currently registered in the securities industry in any capacity.

Allegation #1 – Securities Related Business Outside the Member

5.
In or around June 2010, during the course of an investigation by the Ontario Securities
Commission (the “OSC”) concerning an alleged illegal distribution of securities carried out
through an entity known as Hillcorp International Services (“Hillcorp”), the OSC identified the
Respondent as a participant in the distribution and referred the matter of his involvement to the
MFDA.

6.
MFDA Staff commenced an investigation of the Respondent, which included conducting
an interview of the Respondent. During the interview, the Respondent described the Hillcorp
investment in the following terms:

(a) an investor was required to make a minimum investment of $100,000, which was
purportedly guaranteed;
(b) the investment paid the investor a monthly payment of between $500 and $1,000
over either a three-year or five-year term; and
(c) at the end of the term, the investor elected to either renew their investment or have
their principal returned.

7.
The Respondent stated that a representative of Hillcorp known to the Respondent only as
“Paul” provided the Respondent with a brochure for Hillcorp. The brochure stated that proceeds

1 BMO Nesbitt Burns Inc. is a Member of the Investment Industry Regulatory Organization of Canada.
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raised from investments in Hillcorp were used, inter alia, to purchase shares of oil and real estate
companies.

Individual BR

8.
In or around 2004, while an Approved Person with BMOII, the Respondent approached
BR about investing in Hillcorp. BR was not a client of BMOII but had an account with the
Bank of Montreal (“BMO”).

9.
The Respondent recommended that BR invest $100,000 in Hillcorp. BR provided the
Respondent with a certified cheque in the amount of $100,000 payable to Hillcorp drawn on her
BMO bank account.

10.
The Respondent provided BR’s certified cheque to Paul. In return, Paul provided the
Respondent with post-dated Hillcorp cheques payable to BR for the monthly payments. Paul also
provided the Respondent with a letter on Hillcorp letterhead confirming BR’s investment.

Individual GB

11.
In or around April 2004, while an Approved Person with BMOII, the Respondent
recommended Hillcorp to GB. GB was not a client of BMOII but had an account with BMO.

12.
The Respondent stated that GB was having difficulty meeting his monthly expenses,
including the costs of his wife’s cancer treatment.

13.
The Respondent recommended that GB invest in Hillcorp. GB provided the Respondent
with $100,000 to invest in Hillcorp for a five-year term. The Respondent represented to GB that
GB would receive monthly payments of $2,000 over the course of the five-year term.

Client PS

14.
In or around July 2008, while an approved person with Investors Group, the Respondent
recommended Hillcorp to client PS.
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15.
PS, his wife IS and his sister-in law HK, were formerly clients of BMOII and later moved
their accounts to Investors Group when the Respondent transferred to Investors Group.

16.
The Respondent met PS, IS and HK at their family home regularly. The Respondent
stated that on one such occasion PS advised him that he required funds for a family wedding and
other expenses.

17.
The Respondent recommended that PS invest in Hillcorp. On July 25, 2008, PS
redeemed $84,348.42 in mutual funds from an account at Investors Group to invest in Hillcorp
(the “Redemption”).

18.
The Respondent advised PS that $100,000 was the minimum investment required by
Hillcorp.

19.
As a result, in addition to the proceeds of the Redemption, PS obtained a $100,000 home
equity line of credit to invest in Hillcorp. In total, PS provided the Respondent $185,000 to
invest in Hillcorp.

Hillcorp

20.
On July 21, 2009, the OSC issued a temporary cease trade order against Hillcorp and its
principals (the “Cease Trade Order”). On July 24, 2009, the Cease Trade Order was amended to
include corporate respondent Suncorp Holdings (“Suncorp”), an entity related to Hillcorp.

21.
Between December 1, 2010 and January 7, 2011, two principals of Hillcorp, Steven John
Hill (“Hill”) and Danny De Melo (“De Melo”) entered guilty pleas in the Ontario Court of
Justice to one count each of breaching the Cease Trade Order. On April 18, 2011, as part of the
sentence imposed upon them in the Ontario Court of Justice, Hill and De Melo were ordered to
pay restitution totaling $993,089.67 to 22 Ontario investors.2

2 Individuals BR and GB and client PS were not parties to the restitution order.
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22.
On June 21, 2011, the OSC issued a Statement of Allegations and Notice of Hearing
alleging, inter alia, that Hillcorp, Suncorp, Hill and De Melo engaged in unregistered trading and
the illegal distribution of securities.

23.
On July 15, 2011, the OSC convened a hearing into the matter and ordered, inter alia,
that Hillcorp, Suncorp, Hill and De Melo permanently cease trading in securities and that Hill
and De Melo be reprimanded.

24.
Hillcorp was not an investment approved by Investors Group or BMOII for sale by its
Approved Persons, including the Respondent. All of the above-described transactions involving
BR, GB and client PS were not processed for the account or through the facilities of either
Investors Group or BMOII.

25.
By facilitating the sale of investments in Hillcorp to BR, GB and client PS, the
Respondent engaged in securities related business that was not carried on for the account and
through the facilities of the Member between January 1, 2004 and December 31, 2008, contrary
to MFDA Rules 1.1.1(a) and 2.1.1.

Allegation #2 – Providing False and Misleading Information to the Member

26.
On or about September 4, 2008, Investors Group queried the Respondent about the
Redemption and the applicable $4,710 in deferred sales charges.

27.
On or about September 4, 2008, in response to the query, the Respondent informed
Investors Group, inter alia, of the following: PS required funds for expenses related to a family
wedding; the Respondent advised PS to redeem investments in his account to pay the expenses;
and the Respondent advised PS to obtain a home equity line of credit and replace the investment.

28.
As stated previously herein, PS did not use the proceeds of the Redemption to pay
expenses related to a family wedding. PS used the Redemption proceeds to invest in Hillcorp.

29.
By advising Investors Group that PS used the Redemption proceeds to pay for a family
wedding when the Respondent knew that the proceeds were used to invest in Hillcorp, the
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Respondent provided false and misleading information to the Member, thereby failing to observe
high standards of ethics and conduct in the transaction of business and be of such character and
business repute as is consistent with the standards prescribed by MFDA Rule 2.1.1.

Allegation #3 – Failure to Cooperate with the MFDA’s Investigation

30.
During his interview with MFDA Staff, the Respondent claimed that he did not receive
any fees or commissions for his role in facilitating the sale of investments in Hillcorp. MFDA
Staff asked the Respondent to provide copies of his bank statements. The Respondent undertook
to provide copies of his bank statements for all bank accounts in which he had a beneficial
interest for the periods January 1, 2004 to December 31, 2005 and January 1, 2008 to December
31, 2008 (the “Bank Statements”). The Respondent also undertook during the course of his
interview to provide certain other documents related to the matters under investigation. To date,
the Respondent has failed to fulfill these undertakings.

31.
MFDA Staff made the following attempts to contact the Respondent in order to obtain the
Bank Statements and the other documents that the Respondent undertook to produce:

Date
Content of Letter
Method of Delivery
Outcome
December
Respondent requested to provide
Regular and registered
On December 14, 2011
1, 2011
answers to undertakings:
mail and e-mail
Respondent advised by
e-mail that he was in the
(1) copy of the Bank Statements
process of obtaining the
(2) copy of most recent resume
documents and referred
to delay in obtaining
(3) copy of termination letter from
documents from the
CIBC
banks
(4) names and badge numbers of
police officers to whom the
Respondent says he provided a
statement about Paul
Deadline: December 14, 2011
December
Respondent’s reply acknowledged
e-mail No
response
15, 2011
and Respondent requested to
provide documents in relation to
undertakings items (1) to (3) above
December
Respondent again requested to
e-mail
On January 31, 2012
21, 2011
provide answers to undertakings
Respondent provided
answer to undertaking

item (4) above
Deadline – January 6, 2012
Respondent did not
provide answers to
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Date
Content of Letter
Method of Delivery
Outcome
undertaking items (1)
(2) and (3)

32.
By failing to fulfill his undertakings to provide copies of the Bank Statements and the
other documents requested by Staff, the Respondent has failed to provide documents and
information requested by MFDA Staff during the course of an investigation contrary to section
22 of MFDA By-law No. 1.

NOTICE is further given that the Respondent 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, the Respondent:

ƒ has failed to carry out any agreement with the MFDA;
ƒ 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;
ƒ has failed to comply with the provisions of any By-law, Rule or Policy of the MFDA;
ƒ has engaged in any business conduct or practice which such Regional Council in its
discretion considers unbecoming or not in the public interest; or
ƒ 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;

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(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;
(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
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 the Respondent must serve a Reply on Enforcement Counsel 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,
Ontario
M5H 3T9

Attention: Rohit Kumar, Enforcement Counsel
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,
Ontario
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
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(c) transmitting 1 electronic copy of the Reply to the Corporate Secretary by e-mail at
[email protected].

A Reply may either:

(i) 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

(ii) 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 the 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 the 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 and may impose any of the penalties described in the By-Laws.
End.

Doc 300082
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