Paresh Raja, the founder of collapsed mortgage firm Market Financial Solutions Ltd., is facing a £1.3 billion ($1.8 billion) lawsuit in the UK from creditors alleging he breached his fiduciary duties.
Raja, who is already subject to a worldwide freeze on his assets, is facing litigation in London’s High Court, according to documents seen by Bloomberg. The case is being brought by officials overseeing the wind-down of MFS who said they’re seeking an order that he pay the £1.3 billion that is currently unaccounted for.
The administrators of the insolvency said they’re currently at the “starting point” of broader litigation as they seek to recover funds, documents show. Initial estimates show creditors have £1.8 billion of claims, according to the documents.
MFS was at the center of a sprawling group of companies that borrowed from backers including Barclays Plc, Jefferies Financial Group Inc. and Apollo Global Management Inc.’s Atlas SP Partners. The London-based firm used the money to finance short-term real estate loans and collapsed in February amid allegations of wrongdoing and fraud.
A spokesperson for Raja declined to comment.
The saga has captured the minds of Wall Street executives around the world because it echoed other recent blowups in the credit market including US auto lender Tricolor Holdings and auto parts supplier First Brands Group.
Officials at insolvency firm AlixPartners are overseeing the administration. They were appointed by Zircon Bridging Ltd. and Amber Bridging Ltd., two entities within the MFS group that were backed by Wall Street firms and lent more than £1 billion combined, they have claimed.
Zircon and Amber are both in administration, a UK form of insolvency. Multiple similar entities within the group have also collapsed and are going through separate processes.
MFS has been accused in multiple lawsuits of using the same assets as collateral for multiple debts, a practice known as double pledging, and misappropriating hundreds of millions of pounds of mortgage payments.
This alleged misbehavior, along with issues causing “wider governance concerns,” are likely to result in “highly significant losses” for the firm’s backers, according to the documents, which summarize AlixPartners’ operations so far.
MFS operated about 250 bank accounts although “the full extent of these remains to be determined,” according to the documents. The officials have also probed “the extent of Mr. Raja’s assets.”
Creditors have so far agreed to pay as much as £29 million for litigation and the rest of the administration. Officials have drawn down £19 million so far, the documents show.
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