Tribunal clears two solicitors of unwittingly enabling mortgage fraud

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Property: lender lost hundreds of thousands of pounds

The Solicitors Disciplinary Tribunal (SDT) has cleared two solicitors of being unwitting parties to a mortgage fraud, saying that once the mortgagor’s solicitor had been sanctioned in 2015, the Solicitors Regulation Authority (SRA) should not have continued its case against them as the purchaser’s advisers.

Though the SRA is still entitled to costs even when prosecutions are unsuccessful, the tribunal signalled its unhappiness with the regulator by awarding it just 2% of its claimed costs.

Kim Sharon Egoh and Armaghan Jamal Khalique were directors of East London law firm Khalique Kingsley until it closed on 30 September 2011. Ms Egoh was born in 1964 and admitted as a solicitor in March 1996, while Mr Khalique was born in 1969 and admitted in 1996. Mr Khalique was not directly involved in the matter in dispute but was responsible as a director of the firm.

The firm was acting for two companies in the purchase of a property. A director of the two companies, ‘Mr GR’, took out a mortgage for £733,000 with lender UCB, for which he and UCB instructed a firm called ‘M Solicitors’ in the ruling.

The transaction collapsed and when the purchase money was paid back to the firm, it held them on Mr GR’s instructions – he said it was a gift to one of the companies – and the £733,000 was paid away over the course of the next 22 months, principally to the other company. UCB lost all of its money.

There was no suggestion that the firm or solicitors were parties to the fraud.

The SDT recorded that Mr M, the principal of M Solicitors, had been before a different tribunal in March 2015. He was found to have failed to act in the best interests of his client lender but was cleared of acting without integrity on the basis that the tribunal found that he was not an experienced conveyancing solicitor and did not understand what he was doing.

The present SDT rejected the SRA’s core contention that there were individual and cumulative signs of potential fraud which should have been obvious to a conveyancer of Ms Egoh’s experience.

“At first sight there was a considerable array of unusual features in this matter and the [SRA] relied on their cumulative effect…

“However having examined the factors based on all the evidence which was now before it… the tribunal did not find it proved on the evidence to the required standard that [Ms Egoh] had facilitated or acquiesced in a conveyancing transaction that bore the hallmarks of fraud and accordingly the associated allegation that she failed to act with integrity and/or acted in a way likely to undermine the public trust fell away.

“By way of example, the text of the undertaking given by [Ms Egoh] looked less than candid: but on inspection it was simply the document that she was asked to sign.

“The actions of Mr M, the solicitor who had sent the mortgage money without any of the actions a conveyancing solicitor would expect of the solicitor to a mortgage lender in such a matter, and who then on request simply removed the search supposed to protect those mortgage advances (and that it was the wrong search anyway), were so utterly extraordinary that no solicitor could be expected to contemplate the possibility that the moneys were actually mortgage advances.”

The tribunal said it “entirely understood” the SRA’s initial suspicions about the two solicitors, but continued: “However, it considered the actions of Mr M were so extraordinary that it was entirely understandable that the [Ms Egoh] would not realise that there was a problem.

“She was a transactional lawyer trying to get through a transaction. The tribunal considered that once Mr M’s case was determined, it was clear what he had done: there was then no reason [for the SRA] to proceed with the other allegations.”

The SDT also rejected the allegation that Ms Egoh had not co-operated with the SRA.

The pair were, however, found guilty of a “technical breach” of the accounts rules because the payments were improper as they were from monies which as a matter of fact did not belong to the firm’s clients, and they admitted that they allowed their client account to be used as a banking facility.

Sanctioning them, the SDT said Ms Egoh had undertaken numerous transactions “without difficulty or complaint or sanction”, while Mr Khalique had “an unblemished record and was not alleged to be personally responsible for the actions in question”.

“The tribunal was well aware that over £700,000 was lost (at least initially) but the reason for that loss was not the respondents’ retention of the money for two years. Had the lender raised the issue promptly, for precisely the reason of the breach, the money or much of the money would have been there to repay the lender.”

In terms of providing a banking facility, Ms Egoh “should have known better”, while Mr Khailque ran a Lexcel-accredited firm and should have detected the retention of such a large amount of money for such a long period. But, it noted, “the harm was not intended or foreseeable as the money was thought to be the client’s”.

The SDT said that the two proven allegations, had they been on their own, could have been dealt with by the SRA using its power to fine solicitors up to £2,000, and so that was the penalty it imposed.

The SRA sought costs of £48,411 but the tribunal declined to order costs in relation to the allegations which were not proved. As a result, it ordered costs of just £1,200.