SRA releases report on dubious investment schemes
The Solicitors Regulation Authority (SRA) has published a report warning that law firms must be vigilant when advising on investment schemes.
The report on investment schemes that are potentially dubious sets out typical schemes and explores how and why solicitors can become involved.
Law Society of England and Wales president Simon Davis said: “Historically, fraud is a crime that increases during recessions. As the economy slides and unemployment rises, all solicitors must therefore be alert to that risk, especially if a deal seems too good to be true.
“Concerns about fraudulent investment schemes were a significant motivation behind the SRA's recent decision to reform the Compensation Fund, and to reduce the maximum claim from £2 million to £500,000.
"These activities pose a risk to the ongoing viability of the fund, and – because the Compensation Fund is paid for by a levy on SRA-regulated firms and individuals – place a considerable burden on the profession as a whole.
“Solicitors should also be aware that if, as a result of their unwitting involvement in a fraudulent investment scheme they receive multiple similar claims, there is an aggregation clause in the SRA’s minimum terms and conditions for professional indemnity insurance, which can place a cap of £2 million (or £3 million for incorporated firms) on an insurer's liability for ‘a series of related matters or transactions’.
“If the aggregation clause is triggered, then the principals of the firm could find themselves personally liable for any claims in excess of that cap.”
“The Law Society supports the SRA’s call for solicitors to be aware of the dangers, and exercise due caution and attention to detail when dealing with potentially risky investment schemes.”