CORNWALL, Ont. - Murky allegations that a pedophile clan operated with impunity in eastern Ontario were cast as fabrications spread by a misguided police officer and embraced by a panic-stricken community during four days of final submissions at the Cornwall inquiry.

Public agencies ill-equipped to handle sex abuse allegations, the equation of homosexuality with pedophilia, and the presumption of guilt of accused abusers were all cited as factors in how rumours of the sex ring took root.

While the mandate of the inquiry, which has cost $40 million to date, was to examine institutional response to decades-old allegations of abuse, the majority of the submissions, which began Monday, focused on discrediting the clan theory.

Many suggested the blame for the sensational story, which provincial police found no evidence of in an earlier probe, could be placed on former Cornwall police officer Perry Dunlop.

On Thursday, Commissioner G. Normand Glaude was urged to conclude in his report, due July 31, that the allegations were a paranoid myth.

"There is no doubt that this commission was formed largely in response to the persistence of this `story,"' David Sherriff-Scott, lawyer for the Diocese of Alexandria-Cornwall, submitted to the inquiry.

"The commission, therefore, should unequivocally and unreservedly put the story to rest and declare that, after more than three years of probing, the story is false."

Vulnerable witnesses were easily manipulated by Dunlop into concocting an explosive tale of ritual sexual abuse. And supporters of Dunlop, who was seen as a local hero for his crusade against pedophiles, became a group of "media-savvy conspiracy theorists" who "exacted maximum damage on those targeted," the inquiry heard.

"It is important for you to set out exactly how these allegations were constructed and by whom," Cornwall Police Service lawyer John Callaghan told Glaude. "It's important because the conspiracy theorists will never die.

"Long after you leave town, the bloggers, the gossip hounds, will continue to gather behind some grassy knoll in Cornwall and tell of a conspiracy."

Closing submissions from the diocese and Cornwall police took the position that two witnesses, one known as C8, the other a man named Ron Leroux, fabricated stories of a pedophile ring.

"It was (then) propagated by the reckless incompetence and lack of judgment of Perry Dunlop, who could not discern fact from fiction," Sherriff-Scott told the inquiry.

It began in 1992, Sherriff-Scott said, when a 35-year-old former altar boy alleged he had been sexually abused by a priest and a probation officer. The man reached a settlement with the diocese for $32,000 and didn't pursue charges against either man.

Dunlop leaked the allegations to the local Children's Aid Society and the information eventually appeared in the media. The man launched a complaint against Dunlop.

"Mr. Dunlop became convinced that he was being scapegoated, bullied, harassed and isolated," which caused him to mistrust all public institutions, Sherriff-Scott said.

"In the ensuing storm he simply fell apart."

By early 1994 Dunlop was on sick leave, suffering from mental health challenges and was on multiple medications to deal with conditions such as depression, the inquiry has heard.

Still, he pursued his own investigation, believing a pedophile ring was being operated by prominent locals and being covered up by even more high-profile officials, Sherriff-Scott said.

It was in this environment that Dunlop interviewed C8, who led him to Leroux.

Leroux told Dunlop he witnessed a clan of pedophiles who wore robes, burned candles and sexually abused young boys during weekend meetings in the 1950s and early 1960s.

In June 2007, Leroux told the inquiry that he fabricated the tale.

"Mr. Dunlop, who had been radicalized by his experiences and suffering from the problems he was having, was too lacking in judgment to do anything but snap at this story," Sherriff-Scott said.

Dunlop's former police force was less generous in their submissions, making no mention of Dunlop's mental distress.

Instead, they painted a picture of a man who, along with his lawyer, allegedly took the lead in actively changing Leroux's statements and adding names to a list of alleged pedophiles to fulfil personal vendettas.

In 1997, provincial police launched an investigation and laid 114 charges against 15 people, but found no evidence of a pedophile ring.

Of the men charged, only a bus driver was convicted. Four died before their cases came to trial, four were acquitted, four had the charges against them withdrawn, and two had the charges against them stayed over delays.

Two community groups told the inquiry this week that "inept" public institutions created a void that sent alleged abuse victims flocking to Dunlop, who became the "alternate constabulary."

Dunlop, who has since moved to British Columbia and no longer works in law enforcement, refused to testify at the inquiry and was jailed for seven months on civil and criminal contempt convictions.

The group Citizens for Community Renewal also suggested belief in a pedophile clan was able to gain a foothold due in part to rampant homophobia.

The lawyer for the estate of an accused child sexual abuser who committed suicide said public hysteria flourished due to the lack of a presumption of innocence for people accused of such crimes.