A former owner of Watford has been found guilty of misconduct and dishonesty over financial dealings on behalf of the club and been banned from being involved in a position of authority with any Football League club for three years.

An independent disciplinary commission found that Laurence Bassini, who owned Watford between June 2011 and 2012, borrowed £2.6m for Watford, signing over to the lender transfer fees and TV income the club were due to receive. League regulations require all clubs to inform the league and seek its approval before entering into any such "forward funding" deals and Bassini and his adviser, Angelo Barrea, did not.

Bassini had argued at the hearing that he had been naive and inexperienced in football administration but the commission, made up of three QCs, did not accept that. They found he had been "dishonest in his dealings with the league and with his fellow directors" and "practised secrecy and deception" when he told neither the league nor the other members of the Watford board about the arrangements.

In a marked difference from other disciplinary cases in which clubs themselves have been punished for misconduct by their owners or directors, Watford were given a lighter penalty – a transfer embargo until the end of this summer's transfer window. The club, third in the Championship under the new ownership of the Pozzo family, owners of the Italian Serie A club Udinese, expressed relief at that penalty.

"Watford FC is pleased to confirm that it has not received a points deduction or a fine," the club said in a statement.

Watford also stated that their transfer embargo is not a formal ban on signing players but only a requirement that the league approve all transfers; that is true but the league said it will study the judgment to see how strongly the embargo should be applied.

The Football League brought the charges after its officials, principally the league's in-house solicitor Nick Craig, discovered Watford's "forward funding" arrangements had been entered into without previously informing the league. The loans were from a financing company, LNOC, made to bring money in quickly, to cope with cash-flow problems at Vicarage Road.

In the first Bassini borrowed £951,041 on 21 September 2011 and agreed to sign over £1m due to Watford in two instalments from Swansea City, to complete the £3.5m fee Swansea paid for Watford's former striker Danny Graham.

Clubs must inform the league of any such "forward funding", borrowing against transfer fees due, a regulation introduced to guard against third-party, non-club, ownership and influence over players. The commission found not only did Bassini and Barrea fail to inform the league of this borrowing against the Graham transfer fees but they did not inform the other Watford directors either. The £951,041 from LNOC was paid into Bassini's own holding company, rather than the club, so nobody else at Watford knew about it at the time.

On 26 September 2011, five days after that borrowing against the Graham transfer fees, Bassini arranged to borrow a further £1,660,595 from LNOC against TV and other income Watford were due to receive from the league as members of the Championship. LNOC would be paid the full £1.8m, in two instalments of £900,000, when Watford received it a few months later, LNOC making a profit of £140,000. Such borrowing against league funds is permitted but a transfer embargo is imposed on clubs which practise it. Bassini again did not inform the league of this arrangement.

The commission accepted Bassini's argument that he did not personally profit from these rule breaches. "Mr Bassini … clearly intended to benefit the club by his actions, and by his misconduct," the commission judged. Bassini, a former bankrupt, was introduced to buy Watford by Keith Harris, the investment banker bidding to buy Portsmouth, challenging the Pompey Supporters Trust.