In recent years, fraudulent investment schemes have been evolving at an alarming rate, posing
significant risks to both the public and law firms unwittingly involved in them. As scams adapt to
previous warnings, it becomes essential for all law practitioners to read and heed the following
warning notice. This blog post aims to shed light on the dangers of dubious investment schemes, the
deceptive tactics they employ, and the potential consequences of being involved with them.
The Credibility Trap
One of the most concerning aspects of these schemes is their ability to use the involvement of law
firms to create an illusion of credibility and security. This tactic preys on the trust that people place
in legal professionals and solicitors. However, law firms must be wary and recognise that their
reputation can be tarnished by association with questionable investment schemes.
Fraudulent schemes are continuously evolving to evade detection and rules. What appears to be a
routine conveyancing or investment in “land” might, in reality, involve consumer clients unwittingly
financing high-risk or fraudulent property development. These schemes may even evolve to include
other types of transactions or fraudulent litigation to escape scrutiny.
They may lure buyers with the promise of routine property purchases, only to use their money to
finance property developments or refurbishments. Such schemes are particularly prevalent in
fractional developments, such as buying individual hotel rooms, rooms in care homes, or self-storage
units. The high deposits used to finance these developments expose investors to significant risks that
they might not be adequately informed about.
The Responsibilities of Law Firms
Law firms must play a crucial role in protecting their clients from these deceptive schemes. Acting
merely as conveyancers while masking the true nature of the transaction is unacceptable. Firms
must be transparent with clients, informing them about the substantial risks involved in such
investments and advising them accordingly. Failure to do so may lead to serious misconduct on the
part of the law firm.
Many of these schemes may fall under the classification of “collective investment schemes” under
relevant regulations. Those involved in these schemes without proper authorization are committing
criminal offenses and may face severe penalties, including imprisonment. The Serious Fraud Office
has already investigated significant losses resulting from self-storage schemes.
Unfair Terms and Conflict of Interest
The documentation used in these fraudulent schemes is often designed to confuse and take unfair
advantage of investors. Law firms involved in drafting such documents must be cautious to avoid
facilitating these scams. Furthermore, conflicts of interest can arise when law firms act for both the
promoter and the investor, potentially leading to serious misconduct.
Efforts aimed at preventing or discouraging investors from seeking their own legal counsel may be
considered as acts of dishonesty. Any attempt to hinder buyers or investors from obtaining objective
and independent legal advice raises serious concerns and should be viewed as a red flag indicator.
This could manifest in various ways, including:
- Deliberate or subtle discouragement of investors from hiring their own solicitors, through
suggestions that legal advice is unnecessary or that the promoter and their solicitors will
handle all aspects of the transaction.
- Imposing a requirement or applying pressure to instruct a specific law firm with potential
ties to the developer or vested interests that might hinder objective risk assessment in order
to maintain a continuous flow of business.
- Refusal by the scheme promoter to accept any modifications to standard “conveyancing”
documentation, particularly when the terms are unusual, such as demanding a significant
“deposit” or its release to finance the development.
These actions may suggest a lack of transparency and an intention to limit the investor’s ability to
obtain unbiased legal guidance, which should be taken seriously and treated with caution. Investors
should be wary of such practices and seek independent legal advice to ensure a fair and informed
As investment schemes continue to evolve and employ deceptive tactics, it is crucial for law firms
and members of the public to be aware of the risks and warning signs associated with such schemes.
Transparent communication, due diligence, and adherence to ethical principles are paramount for
safeguarding clients from falling victim to dubious investment practices. By staying vigilant and
informed, law firms can protect their reputation and uphold their responsibility to serve clients with
integrity and professionalism.
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