Law firms have been warned to stay alert to dubious investment schemes after a new study revealed that more than half of solicitors fail to carry out proper due diligence.
The research, published by the Solicitors Regulation Authority (SRA), highlights numerous examples of poor practice which have left consumers at risk of investment fraud.
The report looks at historical cases where law firms had been found to have acted on behalf of sellers of “potentially dubious investment schemes”. It shows that in six in 10 (63 per cent) cases, solicitors “failed to carry out proper due diligence on those who ran the schemes”, while “no checks were carried out at all” in two in 10 (20 per cent) cases.
The study also concluded that in the majority of cases, firms were “often focusing on the interests of the scheme promoter” rather than the interest of the customer.
Commenting on the report, Paul Philip, SRA Chief Executive, said: “Dubious investment schemes result in very significant financial losses for consumers and we will continue to take robust action where we find solicitors are involved.
“While most solicitors would never willingly participate in such schemes, those that do, whether knowingly or not, lend a veneer of credibility which sellers can exploit to help persuade people that their offer is legitimate. Not only does that harm those who buy into these schemes, it undermines confidence in the profession as a whole.”
Following the publication of the study, the regulator has issued new guidance warning solicitors to look out for the following red flags:
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