Solicitors suspended for role in quick-sale property scheme

SDT: Solicitors have learnt a harsh lesson

Two solicitors who breached the trust of vulnerable clients in need of cash by acting in a dodgy quick home sale scheme have been suspended from practice.

Meena Kumari and Teena Banga, who are sisters, were found to have been reckless in their failure to recognise the hallmarks of fraud and money laundering in the dozens of transactions they worked on between 2013 and 2017.

They had “effectively and repeatedly ‘rubber-stamped’ transactions without the required rigour and attention to detail” required, according to the Solicitors Disciplinary Tribunal (SDT).

It added: “The theme running through the transactions was the paucity of robust and critical advice which their clients had deserved and expected…

“The solicitor must act as a gate-keeper and this may sometimes involve providing strong advice not to do something in circumstances where the client may be pursuing a course which would result in disadvantaging themselves.”

But the SDT found that they had not acted dishonestly and that “neither the protection of the public nor the protection of the reputation of the legal profession” required striking them off.

Ms Kumari, who qualified in 2000, ran Wolverhampton firm Kumari Banga, which closed in June 2018. Ms Banga was a trainee at the firm and qualified in 2013; she conducted the day-to-day work on the transactions, under her sister’s supervision.

The alleged fraud involved clients selling their homes on assurances that they could continue to live in them after the sale, with the clients ultimately receiving no money from the proceeds of sale, or substantially less than the net sale price.

The Solicitors Regulation Authority (SRA) has made 12 payments totalling nearly £875,000 from its compensation fund to clients of Kumari Banga.

The SRA told the tribunal that the firm’s insurer has excluded its liability for the negligence claims brought by ex-clients, on the basis that they arose from a dishonest act or omission committed or condoned by the solicitors.

‘SP’ – which press reports indicate was – referred 44 conveyancing matters to the firm, of which 34 completed. The firm was paid a fixed fee of £600 for each one and the referrals accounted for between 9% and 15% of its turnover for the relevant year.

The firm, which conducted minimal due diligence on SP, was restricted to acting for only cash purchasers and sellers because it was not on mortgage lenders’ panels.

In 30 of the transactions, £2.4m was paid from the proceeds to third-party companies, all of which were connected to two individuals; in the other four, there was no such payment but the transaction was at a undervalue.

The tribunal said “a simple internet search” would have revealed the history of the two and made the solicitors “question their involvement with them”.

In September 2016, an anti-money laundering police officer contacted the firm to ask about payments made to the third-party companies in relation to one client.

Ms Kumari declined to discuss it in the absence of client consent and continued to work with SP. In June 2017, both solicitors were interviewed by the police under caution and then stopped working with SP.

Their solicitor-advocate, Jonathan Goodwin, told the SDT that, “upon reflection, informed with the benefit of hindsight”, the women accepted that “they ought to have identified certain suspicious features of the transactions”.

They admitted various breaches of the SRA principles but denied dishonesty, lacking integrity or acting recklessly.

They said they only became aware that the purchasers may have been connected to SP following the police and SRA investigations.

The allegations of dishonesty were predicated on the basis that the solicitors had known the transactions were fraudulent and the SDT said the evidence did not support this.

Also, it found the pair “credible witnesses” and there was evidence which militated against a finding of dishonesty, such as them seeking guidance from the SRA on how to proceed when they had been contacted by the police.

The SDT also noted “the wealth and quality of the character evidence”, the force of which “weighed heavily in the respondents’ favour to the extent that, when viewing this in the context of all the other evidence, the tribunal considered it was inherently unlikely that the respondents had acted dishonestly”.

But the tribunal did find a lack of integrity and recklessness: “The need of most, if not all, the clients in these particular transactions to make quick sales of their home and most important asset should have alerted [them] to their clients’ vulnerabilities and to take particular care on their clients’ behalf.

“The fact that they were sending life-changing sums of money to third-party companies, repeatedly, in circumstances where there appeared to be no basis to do so along with last-minute changes to the purchase price in some cases ought to have alerted [them] to the questionable nature of the transactions…

“[They] had displayed careless behaviour which became habituated transaction after transaction and from which it was reasonable to infer… they had known there had been an obvious risk that the transactions were fraudulent and/or bore the hallmarks of money laundering.

“[They] had therefore been reckless in continuing to act in respect of such transactions.”

The tribunal found as well that neither solicitor carried out proper enquiries in relation to the transactions, properly advised their clients regarding the payments to third-party companies – they did not have “any real grasp or understanding as to why such payments were being made” – or obtained clients’ informed consent to make the payments.

Further, Ms Kumari was found to have entered into a referral arrangement and received fee income as a result in circumstances which compromised her independence and that of her firm.

“In giving evidence, it was not clear to the tribunal that [she] had ever formed a clear distinction in her own mind as to who her client had actually been in the transactions,” the SDT said.

“Indicative of [her] conduct in abdicating her independence was the process by which she allowed SP to send out the firm’s client-care letters. Although this may have been later rectified, it was something which should never have happened.”

The SDT concluded that the pair had “breached the trust of clients made vulnerable by a combination of ill-health, poor education, and desperation for quick money”.

Ms Kumari failed to carry out effectively her roles as compliance officer and money laundering reporting officer, while Ms Banga had plenty of pre-qualification experience “so could not be considered to have been in the same situation as a younger, newly qualified solicitor”.

At the same time, they had “demonstrated genuine insight” and made “proper admissions”.

Ms Kumari was suspended for two years and Ms Banga, as the more junior solicitor, for 18 months. On their return to practice, they may not be an owner of a law firm or hold client money, and the SRA must approve any employment as a solicitor.

“The tribunal accepted that [they] had learnt a harsh lesson but there was more for them to do in order to improve their practice and in time it was hoped they would make a good contribution to the profession and the public,” it concluded.

The pair were also ordered to pay costs of £60,000.

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