Reports double of investment scams using law firms, as public lose 'at least' £100m, warns solicitors watchdog

The "investment schemes", which frequently turn out to be scams, appear more legitimate by using regulated law firms as middlemen. This is often highlighted in promotional materials to make the schemes seem trustworthy and safe. 

Although only a tiny minority of solicitors will be involved in such schemes, the impact on the public is large. The SRA is currently dealing with cases in which consumers have lost at least £100m. These scams were a particular issue in the late 1990s to early 2000s and are now again becoming increasingly common. The SRA has seen an increase in reports of such scams, with initial analysis showing reports having approximately doubled in the last eighteen months.

In the last fortnight, the SRA has successfully prosecuted two solicitors involved in dubious investment schemes at the Solicitors Disciplinary Tribunal (SDT):

• Mandeep Dhariwal, of Lawcomm Solicitors, was fined £40,000 and ordered to pay costs of £20,000 after acting for six different companies offering investments in graphene, diamonds, oil contracts and films. Nearly £9.5m passed through the client account in relation to these investments.
• Mel Goldberg, of Mel Goldberg Law, was struck off the solicitors roll for a range of breaches. This included being involved in a suspected investment scam where he took millions of pounds from investors looking to make money from water purification technology and paid it to other people without the investors' knowledge. As well as being struck off, he was ordered to pay £40,000 costs.

The solicitors involved will have the right to appeal these decisions within 21 days of the SDT publishing its judgments.

The SRA has now published advice for the public on investing in schemes where solicitors may be used to make the scheme seem attractive. Examples of such schemes - where there often is no real investment - include trading in carbon credits, agricultural rights, "rare earth minerals" or diamonds, as well as holiday homes not yet built and leases of individual hotel rooms. 

These are just examples and fraudsters continually change products to one that they claim is the latest opportunity to make high profits. People are often told that their money is covered by the law firm's insurance. Solicitors must have insurance, but if the solicitor is helping a scam, the insurance company may refuse to pay out.

It has also warned solicitors about getting involved in such work and disciplinary action continues to be taken against anyone in the profession found to have helped dubious schemes in any way. Many schemes involve the money being moved through client accounts before being transferred to the operators. Genuine financial services companies do not need to have money coming to them for investment passed through a law firm first. Solicitors have been warned about becoming involved in this way as they could be laundering the proceeds of fraud.

Paul Philip, SRA Chief Executive, said: "The vast majority of solicitors act with honesty and integrity. Unfortunately a small number abuse their position of trust and use their credibility to promote fraudulent investment schemes.

"The evidence suggests this is a growing problem which can cause real misery for people looking to invest their savings. If you are in any doubt, you should get advice from your own solicitor or other trusted adviser.

"We have a strong record of taking action against law firms involved in schemes that set out to dupe investors. But people should be vigilant, and, as ever, the golden rule is that if something sounds too good to be true, it probably is."

The SRA's advice to the public includes:

• If the proposed investment is in something unusual, ask yourself why. Unusual assets are often very high risk.
• Always get your own, independent advice from your own solicitor, a law firm or other trusted professional.
• Always choose your own adviser. Do not use the adviser the investment company "recommends" or "requires".
• Do your homework. Research the scheme and look at official sources. Look for warnings or decisions from financial regulators.
• Do not be pushed to get involved quickly – it is very common for the fraudsters to say you have to act urgently. If they say that, you should be suspicious.

The warning notice can to the public can be found at: www.sra.org.uk/investorscam

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