Investment schemes

There is a real risk to both the public and the reputation of the profession caused by the involvement of solicitors in helping investment schemes that might well be frauds.

We know the vast majority of solicitors and law firms would not knowingly become involved in such schemes, but you should all be aware of the signs. We have seen many different types of investment scheme fail.

Some are old-fashioned 'bank instrument' frauds, where investors are promised huge returns from a 'secret' banking market. Others are careful to avoid the well-known warning signs of such schemes and offer unusual investments with returns much higher than are available on the high street.

Any product can be used, but we have seen failed schemes involving supposed investments in graphene, diamond trading, overseas agricultural rights, carbon credit trading, hotel room purchases and others. In a time of very low interest rates, investors are being tempted by promised returns which, even if they are 10 percent, are still 10 times more than banks and building societies offer on savings accounts.

We issued a warning notice to the profession in September on the risks of involvement in such schemes. And we have also raised public awareness of the dangers. Solicitors and law firms are widely respected and the promoters of fraudulent investment schemes sometimes actively seek the involvement of solicitors to give their activities an impression of credibility or security.

Where solicitors are involved such schemes, we will take action in the public interest. Investors may be promised cover by the Compensation Fund or the firm's indemnity insurance. We are seeing some insurers refusing to pay out, while the Compensation Fund will protect clients who have shown proper prudence in looking after their money.

Those who pay money into investment scams have often contributed to their loss if they have not paid attention to the warning that 'if it is too good to be true, it is probably a fraud'.

We are aware that some solicitors believe that they can act in these schemes as long as they limit their involvement. They should not. The 'limited retainer' argument does not protect a solicitor from committing serious misconduct or acting dishonestly by facilitating a scheme that might be a fraud.

Our latest notice, put out on 21 September (and highlighted in SRA Update Issue 58) can be read here:

Go to the warning notice

There have been a number of recent cases passing through the courts involving this issue. The SDT dealt with three consecutive cases in October and November where investors lost more than £30 million.

One solicitor was struck off, three were suspended, and a fifth was fined £40,000. And a solicitor in Yorkshire has been jailed for eight years for knowingly getting involved in scams that tricked members of the public into investing in schemes that just did not exist.

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