Investors have been warned to be wary of scam “investment schemes” that use solicitors as middlemen to make such investments seem trustworthy and safe.
Legal watchdog, the Solicitors Regulation Authority (SRA), says this type of scam was a particular issue in the late 1990s to early 2000s but is now becoming increasingly common again.
It adds that it’s seen an increase in reports of such scams, with initial analysis showing reports having approximately doubled in the last 18 months. It’s currently dealing with cases in which consumers have lost a collective £100 million.
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 that are yet to be built and leases of individual hotel rooms.
The SRA is currently trying to prosecute four solicitors for involvement in an ‘investment scheme’ involving Brazilian social housing: it involves 849 investors, who lost £21 million between them when the scheme collapsed.
Paul Philip, SRA chief executive, says: "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.”
“People should be vigilant, and, as ever, the golden rule is that if something sounds too good to be true, it probably is," Mr Philip adds.
How do I know if an investment scheme is a scam?
The SRA’s advice to stay safe is as follows:
- 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 – in these cases it’s not typically your own solicitor who is working with the scammers.
- 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.
What should I do if I think I’ve lost money?
The SRA says that in this type of scam, 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.
If you’ve lost money to an investment scam report it to Action Fraud on 0300 123 2040 or online at www.actionfraud.police.co.uk – there is however no guarantee you’ll get your money back, especially if the firm isn’t regulated by the Financial Conduct Authority (FCA).
If you’ve been mis-sold an investment you can complain to the Financial Ombudsman Service, or if the firm you invested with has gone bust you can try to get your money back from the Financial Services Compensation Scheme.
However, you can only use these avenues if the investment firm is regulated by the Financial Conduct Authority – and often with scams these firms won’t be regulated.