FCA bans and issues largest ever fine of nearly £1 million on a retail sole trader for deliberately misleading vulnerable customers for personal gain

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. 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. Often people who sell their homes in this way are vulnerable as they are in financial difficulties and need to raise money to pay mortgage arrears and avoid imminent repossession. 

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. 

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.”

Notes for editors

1. The final notice for Gurpreet Singh Chadda[1]
2. A sale and rent back agreement is an arrangement under which a person buys all or part of a piece of land, and the seller of the piece of land, or a related person, is entitled under the arrangement to occupy at least 40% of the land as or in connection with a dwelling and intends to do so.  The FCA has regulated certain types of sale and rent back agreement since 1 July 2009.
3. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers
5. Find out more information about the FCA, as well as how it is different to the PRA.