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The regulator also ordered trading halted in Coventree’s shares until the company completes the windup of its operations.Philip Cheung for The Globe and Mail

The Ontario Securities Commission has ordered failed financial firm Coventree Inc. to pay $1-million for misleading investors about its financial health, and has imposed fines of $500,000 each on its two founders.

In a ruling released Wednesday, the regulator also ordered Coventree not to trade shares in any other company until it has completed the windup of its operations.

Coventree was Canada's largest non-bank creator of asset-backed commercial paper, but ran into difficulty in 2007 after Canada's $32-billion non-bank ABCP market froze up amid concerns about U.S. subprime mortgages.

The OSC ruled in September that Coventree failed to issue press releases disclosing negative information to investors about financial problems in the ABCP market earlier in 2007, and ruled that co-founders Geoffrey Cornish and Dean Tai were responsible for the disclosure lapses.

In a penalty decision Wednesday, the OSC said Mr. Cornish and Mr. Tai must pay a penalty of $500,000 each, and will be banned from acting as directors or officers of a public company other than Coventree for one year.

The company has been ordered to pay a penalty of $1-million and a further $250,000 to cover costs incurred by the OSC in connection with its hearing in the case.

The penalties are lower than commission staff had sought from the hearing panel. Coventree revealed in October that OSC staff were seeking penalties of $5-million each from the company and the two founders and a further $1.5-million in costs, totalling $16.5-million.

Staff also wanted the hearing panel to make an order preventing both men from getting help from the company to pay their penalties. The panel decision Wednesday, however, said it did not prevent the two men from "making any claim for indemnity" from Coventree to cover the payments ordered in the ruling.

Coventree, which is in the process of being wound up, is the only entity that has faced sanctions from regulators for the breakdown of Canada's ABCP market, although several major banks reached settlements with regulators in 2009 over their role in the market.

The failure of Canada's ABCP market forced many large investors to absorb hundreds of millions of dollars of losses even after their ABCP notes were restructured into new long-term investment instruments.

Kent Thomson, a lawyer for Coventree, said Wednesday he could not comment on the ruling.

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