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The Ontario Securities Commission.Peter Power/The Globe and Mail

Investment manager Terrence Bedford has been sentenced to two years in prison after he was found guilty of running a fraudulent trading scheme that cost investors $5-million (U.S.).

Mr. Bedford ran Hamilton-based Greyhawk Equity Partners LP, and was accused of telling investors he was operating a highly profitable investment fund that was earning substantial returns when in fact he incurred losses. He was accused of defrauding 24 Canadian and American investors between 2000 and 2011.

In a release Wednesday, the Ontario Securities Commission said Mr. Bedford gave investors false documents – including falsified audit reports that he claimed were prepared by a major audit firm – that concealed investment losses and misrepresented the true value of the fund.

"Bedford never advised investors that he was losing or had lost their investments," the OSC said.

The case was prosecuted by the OSC in provincial court, where jail terms up to two years can be imposed. In its release, the OSC said it prefers to take cases to court when it feels a jail term is needed "to send a strong message of deterrence to those who try to exploit investors." The commission's other alternative is to prosecute cases before its administrative tribunal.

OSC enforcement director Tom Atkinson said it is important to the OSC that "appropriate" sentences are imposed for serious financial crimes.

"This case demonstrates that the OSC continues to aggressively pursue people who commit securities fraud in Ontario's capital market," Mr. Atkinson said in a statement.

Greyhawk was placed into bankruptcy protection in 2011. According to court filings for the company's receivership, Mr. Bedford told investors that the fund had more than $200-million in assets under management, but the court-appointed receiver said records showed the fund actually raised $19.2-million from investors between 2000 and 2011.

The receiver said the fund returned $6.4-million in redemptions to investors, telling them they came from trading gains when instead the funds were incurring losses. The receiver recovered $4-million from Greyhawk's accounts.

Court filings say the case came to light when an investor contacted audit firm PricewaterhouseCoopers about a mistake in the firm's audit report on Greyhawk, only to be told the firm had never audited the fund. The audit firm then contacted the OSC to report its concerns.