Investment schemes

Why this risk matters

  • The promoters of dubious investment schemes often try to legitimise them by involving solicitors and law firms. They often tell people that the solicitor’s insurance and the Compensation Fund will protect their money but it is very unlikely that this will be the case.
  • Dubious investment schemes often offer unrealistically high returns for people and lead to significant losses of money. Schemes can include potential investment in, for example:
    • off-plan property
    • hotel room leasing
    • car park spaces
    • bank instrument trading
    • fine wines
    • art
    • diamonds.
  • Very few solicitors would ever knowingly become involved in the promotion or administration of a questionable investment scheme. However, they may get involved by acting for the promoter of a scheme and/or the people interested in investing their money or by passing people’s money through their client account.
  • The schemes that concern us are those that use a solicitor’s reputation to encourage people to invest. The financial losses for people can be high. If solicitors are involved in such schemes, they risk harming public trust in the profession. We are likely to take action including making a referral to the Solicitors Disciplinary Tribunal (SDT).

Trends

  • In March 2018 we were investigating 51 reports of investment fraud.
  • There had been 106 claims to the Compensation Fund totalling £47.4m since 2015 relating to investment schemes.
  • Financial Conduct Authority (FCA) research found that over 65s, with savings of more than £10,000, are three and a half times as likely to fall victim to investment fraud.

Actions

  • Solicitors and firms must not become involved in questionable investment schemes and should:
    • read and follow our warning notices on investment schemes and the client account, investment schemes and conveyancing and on Rule 14.5 of our Accounts Rules 2011
    • carry out due diligence on any promoter of an investment scheme
    • not allow the client account to be used as a banking facility
    • not provide advice or services which would give the appearance of a false underlying legal transaction
    • not allow regulatory protections, such as insurance and access to the Compensation Fund, to be used to persuade or reassure people
    • not give anyone the impression that they are a client if they are not
    • not take unfair advantage of people
    • carefully analyse any complaints or contact from people who are not clients but are affected by a transaction, as this may help uncover a questionable scheme
    • get help and advice from our Professional Ethics team to understand obligations and help with dilemmas.
  • The Financial Conduct Agency’s Scam Smart page contains advice on recognising the warning signs of investment fraud.
  • Our investment fraud paper gives more information about the signs of investment fraud and the consequences for those who become involved.
  • Where solicitors have allowed their client account to be used as a banking facility, or have become directly involved in questionable schemes, we will act to protect the public. Solicitors who act dishonestly, or without integrity, can expect us to take disciplinary action and for their case to be referred to the SDT.
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