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Creditors to Market Financial Solutions, the UK mortgage provider that collapsed suddenly last month amid allegations of fraud, are facing an alleged shortfall of £1.3bn after discovering a network of borrowers seemingly tied to its owner.
Creditors alleged in court filings in London that eight companies that were supposedly “genuine borrowers” from MFS were in fact “closely connected” to the firm’s owner Paresh Raja.
These borrowers from MFS were placed into administration by a court on Tuesday following an urgent application by two creditors, Zircon Bridging Limited and Amber Bridging Limited. These two MFS group entities are already in administration.
Creditors have alleged that their shortfall is “due to improper and likely fraudulent conduct” by MFS, including “lending to connected borrowers and the ‘double-pledging’ of collateral”. Bloomberg first reported on the court filing.
The shortfall cited by the creditors is larger than that previously forecast.
Firms including Barclays, Jefferies and Apollo’s Atlas SP Partners, its structured credit arm, are among firms that extended over £2bn of financing to Market Financial Solutions, which claimed it could “deliver loans as large as £50mn, in as little as three days”.
The London-headquartered firm previously lent to a Bangladeshi politician tied to a property scandal before its collapse into insolvency last month. The judge handling the case referenced the accusations of double-pledging of collateral and fraud at the time.
Barclays began blocking transactions linked to MFS in November after detecting irregularities, before freezing all accounts tied to the firm in early January.
In their filing Zircon and Amber said that MFS “has been subject to a well-publicised collapse, which has accelerated markedly in the last two weeks, revealing an estimated shortfall to creditors in excess of £1.3 billion”.
MFS’s collapse sent reverberations across Wall Street amid fears that underwriting standards in the booming market for asset-backed lending have been lax. MFS’s insolvency comes after the back-to-back failures of US companies Tricolor and First Brands Group.
The Bank of England is among those now asking questions of lenders about MFS.
A spokesman for Raja declined to comment on Tuesday’s hearing.
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