Two directors of an alternative business structure (ABS) have been fined for not supervising a branch office where a fellow partner and a bogus solicitor carried out a £3.3m property fraud.
The Solicitors Regulation Authority (SRA) said neither Darren Fazackerley, fined £10,000, nor Meenal Goyal, fined £5,001, were “complicit” in the fraud, but if they had reviewed the files or accounts of their firm’s London office, they could have discovered what was going on.
Their cases have been concluded with regulatory settlement agreements that mean they will not have to face a disciplinary tribunal; as they worked at an ABS, the SRA has much greater fining powers – up to £50m for an individual, rather than £2,000 for a solicitor working for a ‘traditional’ law firm.
Mr Fazackerley, admitted in 2006, became a sole practitioner at Mayland Porter & Co, based in Ipswich, in December 2015.
The following month, ‘Person A’ joined the firm, which was incorporated with Person A as the sole director. Mr Fazackerley was appointed a director in October 2016.
Mayland Porter became an ABS in February 2017, with Mr Fazackerley the approved manager, joined by Person A in April 2017.
The same month Ms Goyal, admitted in 2009, and became a director and approved manager, though she remained a salaried partner.
The law firm had opened a second office in Lancashire in the summer of 2016 and Mr Fazackerley divided his time between there and Ipswich.
Person A “acquired a London office on behalf of the firm” in June 2017. The SRA it was “the respondents’ case that they were not aware of this until after Person A had acquired the office”.
Person A said he had recruited a solicitor, Person B, to work in the London office as a conveyancer. Person B was using the name of a genuine solicitor, who later told the SRA that she has never worked at the firm; neither Mr Fazackerley nor Ms Goyal met Person B.
Person A opened separate bank accounts for the London office and was the sole signatory. Mr Fazackerley had no access to them despite being the firm’s head of legal practice and of finance and administration.
There were a number of transactions where Person B handled property purchase for purported buyers but money from lenders was instead paid out to unrelated third parties.
The SRA said it was clear that “a review of the files and accounts of the London office could have identified indicators of fraudulent activity”, including the use of forged correspondence, false statements about the status of funds transferred, and failures to respond to enquiries.
Mayland Porter did not maintain reconciliations, client account ledgers, cashbook information or a list of matters on which client funds were held at its London or Ipswich offices.
Mr Fazackerley and Ms Goyal were unaware of what was happening until they were told by third parties. The various lenders were left with a shortfall of £3.3m.
The regulator closed down the firm after the pair reported the situation. Person A “absconded”, while Person B “has not been located”.
Mr Fazackerley admitted that he was reckless in his failure to exercise adequate oversight of his firm’s operations and bank accounts.
Further, he failed to establish and maintain proper accounting systems and internal controls, failed to ensure dealings with client money were properly recorded, and failed to carry out reconciliations or send an accountant’s report to the SRA.
He also transferred client files to other law firms without consent ahead of Mayland Porter closing, and failed to comply with undertakings to discharge charges.
Ms Goyal also admitted failing to exercise adequate oversight and the accounts rule breaches.
The SRA said neither solicitor was “complicit” or had any “personal involvement” in the frauds. They reported the incident promptly to the SRA, made early admissions and made efforts to remedy and rectify any breaches.
Neither solicitor made “any financial gain or received any other benefit as a result of their conduct”.
Justifying the £10,000 fine, the SRA said some of Mr Fazackerley’s behaviour was “reckless, in that he may have missed some ‘red flags’”, and had he carried out additional due diligence, the loss may have been reduced.
In fining Ms Goyal £5,001, the regulator took into account the fact she was not a compliance officer and was not responsible for setting up or approving new offices, nor recruiting new solicitors.
“In addition she had carried out a Law Society search on one of the purported fraudsters and believed her to be the solicitor she purported to be.”
They were each ordered to pay £4,625 in costs.
The SRA has long campaigned to have its fining powers for traditional firms aligned with those in the Legal Services Act 2007 for ABSs – £50m for individuals and £250m for firms.