Over six in 10 solicitors who have been found to have acted on behalf of promoters of “potentially dubious investment schemes” did not carry out the proper due diligence required, it has been revealed.

The Solicitors Regulation Authority (SRA), who published the study, said the figures highlight “numerous” examples of poor practice which have left the public at risk of fraud.

According to the research, 63 per cent of solicitors acting on behalf of a client who later emerged to have promoted a dubious investment scheme “failed to carry out proper due diligence”. And no checks were carried out at all in two out of 10 (20 per cent) cases, the investigation found.

Publishing new guidance in light of the study, the SRA warned that solicitors were “often focusing on the interests of the scheme promoter” rather than the interest of the investor.

The guidance advises that solicitors should instead be looking out for red flags which could indicate a dubious or illegitimate scheme.

These include the transfer of funds through a client account, without the transactions being connected to any underlying legal work; doing no real legal work and legal fees being generated when they are not necessary; schemes being presented as routine conveyancing or investment in “land” when the reality is very different; or schemes labelled as “mini-bonds”, but are in fact speculative investments promising a high return and the buyers’ money is not being used in the way the seller says it will.

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.”

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