The Financial Conduct Authority (FCA) has fined sale and rent back arranger Gurpreet Singh Chadda £945,277 and banned him from working in the financial services industry for significant failings when conducting sale and rent back agreements.

It is the largest ever fine for a sole trader in a retail business.

Chadda was based in Birmingham, trading under the names Red2Black Homes and B&L Homes. The FCA investigated his involvement in seven sale and rent back transactions between June 2009 and January 2010 and found serious failings in all of them.

Chadda’s widespread failings included:

• 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;
• failing to notify the sellers that these purchasers were not authorised or regulated by the FCA, which meant they were not covered by the regulatory protections;
• helping the purchasers to obtain mortgages in the knowledge that they were giving misleading information to mortgage lenders;
• falsely claiming that the price the sellers would get for their properties would be based on an independent valuation;
• misleading the sellers about what their properties were worth; and
• charging the sellers grossly unfair and excessive hidden fees.

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.
Chadda helped the purchasers of six of the seven properties to obtain mortgages. Chadda knew that the mortgage lenders would not knowingly lend money on a sale and rent back transaction, and he knew the purchasers were not telling the lenders the true nature of the sales. 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.

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. In three cases the sellers got less than half of the value of their property; in two of these three cases the seller only received 38% of the sale price of their homes. The FCA believes that Chadda received £695,277 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 that Chadda seriously aggravated his original misconduct by making false and misleading statements to the FCA, 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.

Tracey McDermott, director of enforcement and financial crime, 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.”