Corel Corp. founder Michael Cowpland has agreed to pay $575,000 to settle insider trading charges levelled against him four years ago by the Ontario Securities Commission.

Cowpland, who said he made "an honest mistake", will also be barred from being a director or any publicly-traded company for two years.

"The lesson today for an executive is that you have to look ahead to potential accounting problems," Cowpland said.

Michael Cowpland
Michael Cowpland

The settlement agreement was made public as the OSC began what was to have been a three-week hearing into the case, which has its roots in a big sale of Corel stock more than six years ago.

In August 1997, Cowpland sold 2.4 million shares in Corel – worth more than $20 million – four weeks before the company issued an earnings warning. That warning sent the stock into a major decline.

The OSC alleged that MCJC holdings (Cowpland's private company) sold the shares with knowledge of material facts that were not widely known – specifically that Corel would fall short of quarterly sales figures.

Shareholders had been expecting a profit in the third-quarter, but were surprised by a $32-million US loss.

The OSC said MCJC sold 2,431,200 shares between August 11, 1997 and August 14, 1997. During that period, Corel shares were trading for between $8.10 and $9. On Sept. 11, 1997 – right after Corel's Q3 earnings warning – Corel shares closed at $7.05 and continued to fall for weeks afterwards.

In February 2002, MCJC Holdings pleaded guilty in court to a single charge of insider trading and was fined $1 million. Cowpland himself agreed to a $575,000 penalty. But an OSC panel refused to accept that agreement, saying it didn't have enough information.

Monday's agreement, which must still be approved by an OSC panel, came on the heels of a new OSC estimate that the insider trading saved Cowpland $1,390,000. That's considerably lower than earlier OSC estimates that put Cowpland's gain at upwards of $5.1 million.

Adding together the $1 million fine MCJC has already paid, this settlement, and his legal costs, the OSC said Cowpland will have forfeited all of his gains from the illegal trading, and then some.

Cowpland resigned as Corel's CEO in August 2000. In 2001, he became CEO of Zim after buying a controlling interest in the company. Zim, which specializes in two-way text messaging for business, trades on the over-the-counter market in the United States.