Boss of failed £2bn ‘shadow bank’ faces allegations of taking funds from lender

Market Financial Solutions Faces Administration Amid Fraud Claims

Market Financial Solutions, led by Paresh Raja, entered administration in February following accusations of significant fraudulent activity.

The head of the now-defunct £2 billion shadow banking firm is alleged to have orchestrated a scheme involving fabricated companies to misappropriate funds from its creditors, according to legal documents filed by a group of creditors.

Paresh Raja, who founded MFS, is accused of utilizing eight companies to unlawfully obtain money from creditors under false claims. These entities, presented as legitimate borrowers by MFS, were reportedly closely tied to the company itself.

Creditors succeeded in placing these eight companies into administration earlier this week.

Six of these businesses are owned by two individuals associated with Magus Chartered Accountancy, a small London-based firm believed to be central to the unfolding situation at MFS.

Recent reports revealed that Magus not only served as accountants for MFS but also appeared to own numerous companies that received loans from MFS.

MFS was placed into administration late last month, following what a judge described as “very serious” fraud allegations.

Operating as a shadow bank, MFS did not accept deposits but instead financed its lending by borrowing internally.

Major financial institutions such as Santander, Wells Fargo, Jefferies, and Barclays had supported MFS.

Investigation Into Alleged Fraud

The collapse of MFS has sent shockwaves through the City and prompted the Bank of England to launch an inquiry into the events surrounding its downfall.

On Wednesday, another company linked to a Magus director was placed into administration after evidence suggested it was controlled by Mr Raja and used to commit fraudulent acts, according to legal filings reviewed by Bloomberg.

Analysis of Companies House records indicates that over 130 companies connected to Magus received loans from MFS, potentially accounting for up to 20% of MFS’s client base.

More than half of these Magus-controlled companies obtained loans from various MFS lenders on the same day, secured by identical properties.

Creditors have warned that lending to related parties and the practice of pledging the same collateral for multiple loans have resulted in a deficit exceeding £1.3 billion in MFS’s accounts.

Magus, established in 2002, reportedly employed only two people according to its own financial statements.

Legal Response and Denials

Mike Stubbs, a partner at Mishcon de Reya and legal advisor to Paresh Raja, stated: “While errors have occurred, there was never any intent to defraud, and Mr Raja has not benefited from any possible shortfall.”

Stubbs further asserted, “These claims stem from fundamental misunderstandings and incorrect assumptions, and are substantially inaccurate.”

Cooperation With Liquidators

Both Mr Raja and Mr Hurhangee have pledged their full cooperation with the liquidators of Twinwin and are already assisting in the process.