Wendy Alexander broke parliament rules by failing to register donations to her successful Scottish Labour leadership campaign, MSPs have ruled.
The cash was not placed on her register of interests, Holyrood's standards committee heard.
The committee - which took its decision by five votes to two - will decide what possible sanctions may be imposed against Ms Alexander on Thursday.
The Paisley North MSP said she had acted in good faith over the issue.
In a letter to the committee, Ms Alexander said she had not registered the gifts on the advice of parliament standards experts - but took quick action to do so following subsequent advice.
It added that she had always acted "with the utmost faith" at every stage.
And the Scottish Labour leader said history showed she had always complied with the rules on the register of interests.
Ms Alexander had said clerks to the standards committee wrongly told her it was unnecessary to declare donations but later updated her register with details of 10 donors who each gave about £1,000 to her leadership campaign.
She said she took the action after Scottish parliamentary standards commissioner Dr Jim Dyer took advice from a senior QC and decided the donations should be treated as gifts.
Delivering the ruling, standards committee convener Keith Brown said: "The standards commissioner concluded that, although she did not have direct ownership or control of the campaign funds, Ms Alexander had a beneficial interest in them.
"He concluded that a fair-minded and impartial observer would consider that the interests could influence a person acting as an MSP or give the appearance of prejudicing that person's ability to act impartially."
The committee ruling was the latest development in the saga of donations to Ms Alexander's leadership campaign.
She expressed "deep regret" that her team accepted an illegal £950 donation from Jersey-based businessman Paul Green, although the Electoral Commission found there was not sufficient evidence to prove an offence and did not report her to prosecutors.
SNP MSP for Perth, Roseanna Cunningham, said Ms Alexander's credibility was in tatters and was unlikely ever to recover, adding: "Wendy Alexander and Scottish Labour have been irreparably damaged by this protracted scandal."