Investment schemes

Why this risk matters

  • People who promote questionable investment schemes often try to legitimise them by involving solicitors and law firms.
  • All solicitors must know the signs of these investment schemes to avoid becoming involved.
  • Promoters often tell investors that the solicitor's insurance and the Compensation Fund will protect their investment. This is not necessarily true.
  • If solicitors agree to move money through their client account, they can find themselves in breach of our Accounts Rules as solicitors should not provide banking facilities.

Trends

  • Questionable investment schemes have many features in common, for example that they offer unrealistically high returns.
  • Examples where a solicitor or law firm has been used to legitimise these schemes include:
    • New build property abroad – often described as “off-plan”.
    • Hotel room leasing.
    • Bank instrument trading.
    • Carbon credits.
    • Diamond trading.
  • We have seen an increase in reports of banking facilities being provided through client accounts over the last three years. These reports can lead to us discovering a questionable investment scheme.

Actions

  • Solicitors and firms must not become involved in such schemes.
  • Good practice includes:
    • Reading our latest warning notice on conveyancing investment schemes.
    • Making sure you are familiar with of our warning notices and report on investment fraud.
    • Carrying out due diligence on anyone offering an investment scheme.
    • Not allowing the your client account to be used as a banking facility.
    • Not agreeing to give artificial advice or services which would give the false appearance of an underlying legal transaction.
    • Remaining independent of a client.
    • Not giving anyone the impression that they are a client if they are not.
    • Not taking unfair advantage of people.
    • Getting advice from our Professional Ethics team to understand your obligations and help with dilemmas.
  • Several law firms and solicitors have been referred to the SDT for involvement in questionable investment schemes. This includes a case where a firm received a record fine of £500,000 for failing to prevent a partner from using their client account to facilitate a questionabl investment scheme.
  • The SDT also issued fines of £50,000 for a firm and £10,000 for several solicitors individually in relation to a dubious investment scheme. The firm had provided banking services through its client account while acting in a complex transaction that the firm did not fully understand. And a solicitor was struck off for involvement in an investment scheme that was found to be fraudulent.
  • The Financial Conduct Authority (FCA) has updated their guidance on how to recognise and avoid questionable schemes. People can check the FCA Register to see if a business or individual is authorised and their Warning List, which shows the businesses to avoid. Their Scam Smart page also contains advice on recognising the warning signs of investment fraud.

Further information

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