In the biggest ever penalty on an individual trader, the UK financial sector regulator FCA on Wednesday imposed a fine of nearly one million pounds on an Indian-origin realty broker for fraudulent sale and renting of homes.
Birmingham-based Gurpreet Singh Chadda, who was doing business of sale and rent-back of homes through Red2Black Homes and B&L Homes, has also been banned from working in the British financial services industry, besides a fine of 945,277 pounds (nearly Rs nine crore), the FCA said.
"This is the largest ever fine for a sole trader in a retail business," the Financial Conduct Authority said, adding that Chadda was deliberately misleading his customers for personal gains.
The order follows an FCA investigation into Chadda's involvement in seven sale and rent back transactions between June 2009 and January 2010.
The regulator found serious failings in all the seven cases, it said.
A sale and rent back transaction is an agreement where a home owner sells their home and then rents it back from the arranger so as to be able to carry on living in the home. FCA said that people who sell their homes in this way are often vulnerable as they are in financial difficulties and need to raise money to pay mortgage arrears and avoid imminent repossession.
As per the FCA order, Chadda was misleading the sellers of the properties, who were his customers, by telling them he would be buying their homes when in fact the purchasers were other people.
Other charges against him included failure in notifying the sellers that the purchasers of their homes were not covered by the regulatory protections, while he also helped the purchasers to obtain mortgages while knowing that they were giving misleading information to mortgage lenders.
He also falsely claimed that the price the sellers would get for their properties would be based on an independent valuation.
He was misleading the sellers about what their properties were worth, and also charged the sellers grossly unfair and excessive hidden fees, FCA said.
"In the seven sale and rent back transactions the FCA investigated, there was no independent valuation and Chadda assigned values to the properties based on the purchasers' mortgage valuations or his own opinion.
"He assigned to two properties a market value which was significantly less than actual market value.
"In one case, he or his representatives fabricated a mortgage valuation to make it look as though the seller's property was worth substantially less than its real value," the regulator said.
According to FCA, Chadda helped the purchasers of six of the seven properties to obtain mortgages, while knowing that the mortgage lenders would not knowingly lend money on a sale and rent back transaction. He knew the purchasers were not telling the lenders the true nature of the sales, FCA added.
"In one case, he helped the purchaser to mislead the lender by drafting a letter that falsely confirmed that the seller would not be remaining in the property after the sale," FCA said.
Although the sellers expected to get a discounted price for their properties, they did not know that Chadda was receiving the full price for the properties from the purchasers.
In two cases, he reduced the sellers' share of the sale money by misleading them about the value of their property, and in one case he exaggerated the legal costs that the seller had to pay, to further reduce the amount the seller received.
FCA further said that in three cases the sellers got less than half of the value of their property, while in two of these three cases the seller only received 38 per cent of the sale price of their homes.
"The FCA believes that Chadda received 695,277 pounds from the seven transactions as a result of his misconduct, and that these charges were unfair and excessive.
"The penalty includes disgorgement of the whole of this sum," the regulator said.
The FCA also charged Chadda of seriously aggravating his misconduct by making false and misleading statements to it and by failing to disclose relevant documents and information and creating misleading documents.
"He also arranged for people to impersonate his customers in order to mislead the FCA," the regulator said. Commenting on the order, FCA's director of enforcement and financial crime, Tracey McDermott, said: "Chadda's misconduct is the most shocking we have seen from a home finance arranger.
He is a disgrace to financial services.
"He deliberately misled his clients for his own personal gain and then repeatedly and cynically lied to the FCA.
"Chadda is not fit to work in regulated financial services and he presents a serious risk to customers and lenders alike with his dishonest and unscrupulous actions.
"The unprecedented level of the fine for a sole trader reflects our determination to deprive him of the gains he made as a result of his misconduct," McDermott added.
FCA has asked Chadda to pay the financial penalty within 14 days, that is by July 3, 2013, failing which it can recover the outstanding amount as a debt owned by him.