UK: FSA fine for fraudulent mortgage applications.

"Disgorge illicit gains?" This is straight out of the US regulators' handbook. Shame on Margaret Cole - but it is interesting to see just how much the USA is driving financial regulation - even into countries that have long had far better regulation that the USA even now aspires to.

In the instant case, Sadia Nasir was approved by the FSA as a mortgage broker, and she was the director of a company called London Mortgage and Financial Services Limited based in Ilford in East London. Regular readers will realise that, rather like Baton Rouge in Florida, East London in England figures a lot in these pages.

The fact is that the order made does not include an order for "disgorgement of profits." Mrs Cole may know the words, but she appears not to fully understand them - in part because the FSA does not have the power to order the repayment of profits.

Thus it is that, by levying a fine of GBP129,000 the FSA feels that it has not only delivered a penalty but also delivered a means of taking off her the proceeds of the criminal offence. The FSA says that the figure is a penalty of GBP100,000 plus 29,000 "disgorgement of profits" - but describes the whole figure as a fine.

There's an interesting issue here: she has not been subject to criminal proceedings and therefore there can be an action for fraud and money laundering. If there were, the FSA procedings would not form double jeapardy - the FSA is an agency not an organ of the state.

The company has now been renamed: Nasir is a director of Sucasa (London) Limited, formerly named London Mortgages and Financial Services Limited, trading as House of Finance ("HoF"), which was a mortgage broker in the Ilford area. HoF was authorised by the FSA between 31 October 2004 and 25 May 2007 and, during this time, Ms Nasir performed the controlled function of CF1 (Director) and was the only mortgage adviser at the firm.

Extracts from notices:

In summary, you submitted seven mortgage applications containing false information about your own employment and earnings. Various documents, including payslips, financial statements and accountant’s certificates submitted by you in support of these applications have been found to contain false information. The true extent of your property holdings were not disclosed on four mortgage applications. In addition, you submitted residential mortgage applications for three properties which you were purchasing as buy-to-let properties.

Furthermore, you deliberately withheld sections of an application form from FSA investigators when you were compelled to provide copies of your own applications. Also, you failed to disclose to the FSA any information relating to the County Court Judgment (“CCJ”) made against you in September 2005 and to disclose the true extent of your assets in a recent authorisation application to the FSA.

The FSA reviewed seven mortgage applications that you submitted to seven different lenders over a five year period. You submitted four mortgage applications through HoF and three mortgage applications via third party mortgage intermediaries.

You submitted sets of financial statements in support of two of your mortgage applications, none of which were consistent with the financial information filed at Companies House. You confirmed that your signature appears on the relevant documents and therefore you had knowledge of the contents of each set of these misleading financial statements.

You knowingly and intentionally submitted three mortgage applications on a residential basis for properties being purchased as buy-to-let in order to obtain lower interest rates on the mortgages. You told the FSA that these properties were held on a buy-to-let basis. The lenders told the FSA that they were unaware that you had bought them to let.

On mortgage applications for four clients, the direct debit forms contained banking details for a bank account held in your name. You failed to provide a satisfactory reason for entering your own bank details in customers’ mortgage applications.

One of the four applications, in the name of Client A, was accompanied by a copy of your bank statement which was used to verify the address. When questioned about this, your only comment was that this application was declined at an early stage and should not have proceeded.

Of the four individuals, the only person that the FSA was able to trace and speak to was Client A, who said that she had submitted no mortgage application through you. It is highly likely that you attempted to purchase these properties for personal gain by using the identity, in at least one of the four cases, of a third party.

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How do we know Cole is speaking American? Simple: the FSA used the term "disgorgement" in 2005 in Consultation Paper 171 on Conflicts of interest. It also shows that it's part of the fine, not a separate penalty.

In that Paper, the FSA said " The SEC subsequently filed civil actions against certain US investment banks. These actions were settled in each case without admission or denial of the allegations. The settlements included the payment of fines and the payment of disgorgement (effectively a fine estimated to be equivalent to the amount gained by misconduct) by the investment banks involved."