A company tied to the collapsed shadow bank Market Financial Solutions (MFS) misled investors by wrongly claiming it had regulatory approval.

Creative Market Finance, formerly owned by Paresh Raja, the founder of MFS, wrongly claimed for two years that it had a licence from the Financial Conduct Authority (FCA).

Between 2016 and 2018, the company advertised the seal of approval prominently on its website, although it is understood that it was unlicensed throughout this period.

The licence advertised was for consumer credit activities, although Creative Market Finance’s (CMF) business was instead based on raising money from individuals and investing.

These activities would have required separate permissions from the FCA that the company did not have.

At the time of the false advertising, CMF described itself as a “sister company” to MFS, forming part of Mr Raja’s crop of so-called bridging lenders in the UK.

MFS provided short-term, property-backed loans to borrowers who may not have qualified for traditional bank financing and often charged higher interest rates.

The revelations will raise questions about whether regulators missed early red flags within Mr Raja’s “shadow banking” empire.

The entrepreneur has been hit with a worldwide asset-freezing order after MFS collapsed in February amid allegations of a “very serious” fraud.

Mr Raja first bought a 50pc stake in CMF in 2016, co-owning the business with Zaheed Nizar, a former banker at Goldman Sachs and Morgan Stanley.

Mr Nizar was banned for nine years in 2024 from serving as a company director because of a Covid loan fraud concerning a separate hotel business he owned.

It is understood that CMF had previously obtained FCA approval, but the licence had expired once Mr Raja had taken over the business.

At the time, the company claimed its funds were managed with the “highest level of security and professionalism”.

It promised the “utmost secure and safest form of lending” and “guaranteed income for each of our investors”.

Both Mr Nizar and Mr Raja appeared intent on raising money from individuals in the British Asian community, featuring alongside each other in an interview in Asian Voice in 2015, which directed prospective investors to MFS’s website.

CMF was a brief part of Mr Raja’s shadow banking, although MFS later became the main part of his business.

The company, which described itself as a specialist provider of buy-to-let mortgage lending and bridging finance, at one point boasted of a loan book of £2.5bn.

However, it collapsed into administration earlier this year amid allegations of fraud.

Founded and owned by Mr Raja, MFS did not take deposits but was instead funded by borrowing from banks and other financial firms.

This included large borrowings from institutional investors such as Barclays and Jefferies, both of which are now facing steep losses.

The fallout has led to creditors accusing Mr Raja of running a network of fake companies to steal money from them.

In a claim filed in the High Court, the creditors warned that lending to connected borrowers, as well as the “double-pledging” of collateral to secure multiple loans, triggered a £1.3bn hole in MFS’s accounts.

Representatives for Mr Raja have called the allegations from creditors “materially incorrect” and said there had been no intention to defraud.

They have also claimed Mr Raja was not the beneficiary of any shortfall, if there was one.

They declined to comment on questions related to CMF. Mr Nizar did not respond to a request to comment.

The FCA declined to comment.

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