Squeakmail, I would be interested to know who told you of this little loophole, and when.
The following are all FACTS.
The FAA initiated action against two instructors at a CAA approved school in the US, one of whom had FAA and CAA ratings, the other having CAA only, as a result of a student for a CAA PPL flying solo.
The case against the instructor with CAA ratings only was that he had given instruction to the student prior to flying solo, which they regarded as instruction towards first solo, and that he had no right to give this instruction. The case against the insructor with both sets of ratings was that he had authorised the students first solo without having covered all the required elements himself, but took into consideration instruction given by the CAA licenced colleague which was not acceptable.
Could it be that even after this, the owner of this school is still BSing and putting other peoples licences at risk ? Don't let him sucker you too . If the **** hits the fan he'll leave you to carry the can.