Watford have been placed under transfer embargo and former owner Laurence Bassini banned from football for three years for financial misconduct.
However, the promotion-chasing club, currently third in the Championship, escaped a points deduction and fine.
The Hornets and businessman Bassini were charged last August with a breach of Football League rules.
One of those breaches related to the transfer of striker Danny Graham to Swansea City in June 2011.
Under the terms of the embargo, Watford can still sign players with prior permission from league officials.
The embargo will last until the end of the summer transfer window on 31 August.
A Football Disciplinary Commission found that the club should have been placed under a transfer embargo for 11 months from 26 September 2011.
The commission stated that Watford signed eight players in that time and although determining that the club gained a sporting advantage from those transfers, it did not deem a points deduction necessary.
The Hornets are pursuing a place in the Premier League and are currently two points off an automatic promotion place.
Watford and Bassini, who sold the club to the Pozzo family in June, were found guilty of failing to inform the Football League of financial agreements set up with a company called LNOC.
These agreements, which were shown to be arranged by Bassini and his advisor Angelo Barrea without the club's knowledge, led to Watford being given funds by LNOC, in return for money from the transfer of Graham to Swansea and the club's share of the Championship's TV rights deal.
The commission found that Watford received £951,041 from LNOC on 21 September 2011 in exchange for a return of £1m, which was guaranteed in the form of the two remaining £500,000 payments from Swansea for the purchase of Graham.
LNOC and their involvement
In the same month, LNOC handed a sum in the region of £1.66m to Watford, guaranteed against two £900,000 instalments from Watford's share of central Football League money.
The Football League requires clubs to name any third parties who possess an interest in a transfer contract and says it was never told of LNOC's involvement in the Graham transfer.
It also requires notification within 24 hours if a club has made plans to redistribute central funding to a third party, which it never received.
Had Watford declared this arrangement, they would have been immediately placed under transfer embargo.
The club were unaware of the funding from LNOC, as the money was paid into an account belonging to Watford FC Ltd, the company setup by Bassini to hold his majority shareholding.
The breaches have no connection with Watford's current owners, the Pozzo family.
"It is clear from the decision of the Football Disciplinary Commission that the offences which the club has been found guilty of were committed by one or two individuals who are no longer associated with the club - and without the knowledge of the full board of the club,"
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Comments
The final punishment of not being able to sign players till the summer says it all.
It's only the News Shopper you shouldn't cut and paste. BBC don't need the hits.
They've escaped a points deduction and a fine and can still sign players with the league's permission.
This is especially true when they could keep Palace out of the top two!
They've escaped a points deduction and a fine and can still sign players with the league's permission.
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Don't think there is one.
Put all the blame on Bassini - its a wonder how he managed to gain control of a football club with his previous record of being bankrupt in the first place..
It has taken them since the orginal investigation in November to decide - begs the question if we were mid-table would they have taken points off?
Usual pathetic work by the so called authroities
TBH There are quite a few areas of the game they could try to clean up but don't....
Like "numpties" better ...
What a crock of horse's poo !
Does this mean that if Watford are promoted then anyone in the top six (or seven) who miss out can sue them for loss of earnings? Just as Sheffield United did to West Ham...
Whether it is current or previous owners is irrelevant as it is the same club...
In response to Prague I am not sure they are breaking any regulations with the Italian loans but the league are looking to change the rules?
End of the day, the Premier League money is so massive that it should attract all kinds of investment, financial engineering and tricks with registrations into the top eight Championship clubs... It's just a shame that CAFC is not in this position...
Sooner we do a tie up with PSG the better!
This particular issue wasn't anything to do with the Pozzos.
Bassini was viewed as personally at fault so banned from the game for 3 years and we seem to have got away with it as a club.