B.C. regulator accuses unregistered 'shadow' mortgage broker in half billion dollar case
Cease and desist order issued against Jay Kanth Chaudhary as multiple investigations continue
B.C.'s registrar of mortgage brokers has issued a cease and desist order against an unregistered "shadow" mortgage broker allegedly linked to more than half a billion dollars worth of questionable financing over the past decade.
The order against Jay Kanth Chaudhary is unprecedented — as is the number of files involved.
The regulator claims Chaudhary collected more than $6 million worth of fees associated with 900 files in the decade since he last held legitimate registration as a mortgage broker.
He is accused of working with others to arrange home financing for people who would not normally qualify for a mortgage through altered federal tax forms and other fake financial documents.
"The network that Mr. Chaudhary was working with involved at least 20 mortgage brokers and real estate licensees," said Chris Carter, B.C.'s acting registrar of mortgage brokers.
"We have multiple investigations underway. My office has been crystal clear with industry that we have zero tolerance when it comes to fronting unregistered activity."
'Mortgage brokers as well as ... real estate licensees'
Chaudhary was registered as a submortgage broker from January 2007 until October 2008.
But he failed to re-register after he was suspended for four months in October 2008 when lenders raised concerns about inconsistencies related to documentation Chaudhary submitted in association with numerous applications.
According to the cease and desist order, Carter's office received two tips about Chaudhary in 2017 and 2018.
The first was an email claiming he "worked with mortgage brokers, as well as a group of real estate licensees who co-operated with him in arranging mortgage applications based on falsified documents."
The second was from a North Vancouver financial institution which had conducted an audit showing discrepancies in 15 files — nearly half of which were insured by the Canada Mortgage and Housing Corporation.
Investigators allegedly found numerous mortgage applications submitted by a registered mortgage broker accused of working with Chaudhary on files that were found to contain altered documents.
Staff obtained an order to enter the mortgage broker's residence and seized laptops and phones, which allegedly turned up 1,068 text messages between the two "discussing mortgage broker applications, mortgage application status updates and sharing of mortgage documents."
'Not the documents she provided'
The cease-and-desist order claims that Chaudhary was using multiple email addresses, phone numbers and names to conduct business.
Investigators also interviewed a woman and her father who claimed they met with a mortgage broker named "Mike" who they subsequently learned was Chaudhary. The pair were presented with documents given to banks on their behalf.
"Neither she nor her father were self employed as indicated in the documents," the order says.
"The (tax forms) were not the documents she provided ... and did not accurately reflect her correct employment or income. The RBC bank account statement was not from her account and did not accurately reflect her balance or banking history."
Carter says investigators were able to prepare a spread sheet documenting Chaudhary's unregistered activity in the past decade.
"According to that document, from 2009 to mid 2018, Mr. Chaudhary worked on 875 files, generated $5,283,347 in client fees and $642,344 in referral fees paid by the registered submortgage brokers who submitted the applications to lenders on his behalf, and arranged $511,558,206 in mortgage loans," the cease and desist order says.
'Public and lenders at risk'
Carter says he decided to issue the order because evidence suggests Chaudhary is still arranging mortgage financing despite warnings.
"The evidence is clear Mr. Chaudhary engaged in ongoing unregistered mortgage broker activity which puts the public and lenders at risk," the order says.
"The size and scale of Mr. Chaudhary's unregistered mortgage broker activities, supported by a network of regulated individuals, represents a significant risk to the integrity of the real estate and financial services marketplace.
The case comes on the heels of another major case for Carter's office, in which investigators identified a woman accused of acting as a "shadow" mortgage broker for dozens of people.
Like Chaudhary, Vinita Lal is accused of using licensed professionals to feed altered tax documents to banks in order to help people who would otherwise not qualify for a mortgage to get a home.
But the scope of the allegations against Chaudhary appears to be the largest Carter's office has handled to date.
The Canada Mortgage and Housing Corporation has claimed that government analysis suggests mortgage fraud is rare. But real estate industry experts have warned mortgage fraud is on the rise.
Chaudhary could not be reached for comment. According to a magazine article on his wedding, he is married to a real estate agent.
He has the right to appeal the cease-and-desist order to B.C.'s Financial Services Tribunal.