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File photo: Hedge fund manager Otto Spork, poses for a portrait at his office on Bay St. in Toronto on November 26, 2007.Fernando Morales/The Globe and Mail

The bizarre tale of the Canadian hedge fund manager who falsely inflated returns from investments in companies poised to sell Icelandic glacier water is nearing its sorry end.

Otto Spork, a dentist-turned-fund manager who claimed to be earning huge returns in the midst of the 2008 financial crisis, was ordered Monday by the Ontario Securities Commission to pay a $1-million penalty and disgorge $6.4-million in fees he charged investors while perpetrating a fraud in his now-defunct fund.

During the stock market meltdown in November 2008, Mr. Spork told investors that the fund had gained 730 per cent in the two and a half years since inception. But when OSC staff ordered Mr. Spork to stop selling his Canadian fund in late 2008, it was only invested in two private startup Icelandic companies in which he held interests.

It is not clear if Mr. Spork, who has 30 days to appeal the decision, will do so, or whether the regulator will be able to collect the money from him. Mr. Spork has not appeared at any OSC proceeding in the past three and a half years, and he changed lawyers this year.

"A significant amount of fines levied by the OSC is never collected," University of Toronto business professor Richard Powers said in an interview. "It becomes a cat-and-mouse game between the perpetrator trying to hide assets or limit access to assets, and the OSC … trying to claw them back."

In an e-mail last night, OSC spokeswoman Carolyn Shaw-Rimmington said commission staff "will make every reasonable effort" to enforce the order. "While it would be premature to speculate on the amount [that can be collected], staff will work with the receiver [PricewaterhouseCoopers] to ensure that any amounts recovered are available to be returned to investors."

The commission last year ruled that Mr. Spork, who launched Sextant Capital Management Inc., committed "non-criminal fraud" by boosting returns in his fund to collect significantly higher fees. He ran Sextant Strategic Opportunities Fund, sold in Ontario, and two offshore funds.

The hedge fund firm was a family affair. Mr. Spork's daughter, Natalie, an officer and director of Sextant Capital, was also ordered to pay a $50,000 fine and disgorge $140,000 for breaching securities laws. His brother-in-law, Dino Ekonomidis, formerly vice-president of corporate development, must pay a $250,000 penalty and disgorge an additional $250,000.

All three "fundamentally disagree with the commission's decision," and are considering an appeal of the sanctions rulings, said their lawyer, Jay Naster. Mr. Spork could not be reached for comment.

Mr. Spork charged his Canadian fund more than $6-million in performance and management fees from July, 2007, to December, 2008. He committed fraud by selling funds with inflated values not supported by third-party valuations, and also "misappropriated money" from these investments by taking $4-million in so-called loans for his personal benefit, the OSC said in last year's ruling.

Nearly 250 investors put $23-million into the Canadian fund, which was put into receivership. William Linton, chief financial officer of cable giant Rogers Communications Inc., was among the investors. All the Sextant funds were invested in Iceland Glacier Products SA, a company with no revenues and controlled by Mr. Spork. He did begin construction on the plant to bottle glacier water.

Commission staff had also alleged that Mr. Spork breached rules prohibiting related-party transactions as well as a 20-per-cent restriction on holdings in any one company. More than 90 per cent of the Canadian fund was invested in Iceland Glacier Products, one of the two startup Icelandic firms.

In his 14-page sanction's ruling, OSC commissioner and panel chair James Carnwath said it was important to impose penalties to "reflect the seriousness of the securities violations that occurred in the matter."

The penalties must be imposed "not only to deter the respondents, but also like-minded people from engaging in future conduct that violates securities law," he wrote.