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FOS rule against Barclays in unusual investment fraud case

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Barclays Bank have been ordered to reimburse an
investor who transferred over £80,000 to a fraudster.

Scam or not?

After investigating her initial complaint, Barclays refused to refund their customer, Miss I, on the grounds that they believed this was a buyer/seller dispute and that no scam had taken place. She asked the Government backed Financial Ombudsman Service (FOS), who deal with complaints against financial institutions, to carry out a review.

Miss I had been introduced to the so-called broker shortly before she received an inheritance. She was persuaded to make a series of transfers to the broker over a 2-year period between 2016 and 2018, despite never receiving any paperwork associated with the proposed investments.

She did receive around £9000 in ‘returns’ payments, reassuring her that the money had been invested and was rising in value. In fact, Miss I later discovered that her money had never been invested in the first place and the broker was operating ‘simulator accounts’, online tools that allow investors to practice their stock-picking skills without investing real money.

In responding to the complaint, Barclays tried to place heavy emphasis on there being an established relationship between Miss I and the so-called broker, claiming they were good friends and frequently holidayed together. The truth was that Miss I initially wanted to buy an overseas property with the broker’s help, and this involved both travelling (separately) to the location to view it.

The Ombudsman highlighted the fact that many financial scams involve a period of building trust between the parties. Once trust has been established and the first payment made, it is often the case that the fraudster demands more money without the investor suspecting anything is wrong.

This is a type of scam where the fraudster tricks their victims into willingly making large bank transfers to them, such as was the case with Miss I. As the investor authorises the payments from their own bank account, not all banks will reimburse money that is lost to scammers.

Banks are familiar with different and increasingly sophisticated types of financial fraud and have a duty to protect their customers. It is good industry practice to monitor unusual transactions, particularly on behalf of financially naïve or vulnerable investors. They are able to block or delay payments, so that additional checks can be made. None of this happened in Miss I’s case.

The broker who took Miss I’s money was an estate agent, not a financial adviser, and was not regulated by City watchdog, the Financial Conduct Authority to give financial planning advice. He did not provide any paperwork for the investments he claimed to make on Miss I’s behalf and the money he received was deposited into his personal bank account, not a business one.

The Ombudsman concluded that, had Barclays asked Miss I more questions about the broker and his background, and had given her some advice on fraud and scams, the scam might have been uncovered and her money might never have been transferred. The Ombudsman went on to say that Miss I should not take any blame for allowing the fraud to happen – she was a vulnerable and unwitting victim – and she should be fully compensated by Barclays for her loss.

The Ombudsman states in the decision:

“…I think Miss I was quite taken in by the fraudster. In the circumstances, I can understand why she didn’t check whether the broker was regulated or challenge him when she didn’t receive any investment paperwork. However, with its knowledge of investment scams, I think that these red flags would’ve become obvious to Barclays, and consequently Miss I, if it had questioned her about the payment in an appropriate manner and/or sought to educate her on investment scams.

Overall, I still think that if Barclays had questioned Miss I about the payment, in an appropriate and sensitive way, in order to satisfy itself that she wasn’t falling victim to a scam, then it’s likely the scam would’ve been exposed, and Miss I wouldn’t have made the payment or any subsequent payments to the broker. So, I still think it would be fair and reasonable for Barclays to refund all the money Miss I has lost to this scam along with 8% simple interest per annum…”

Commenting on the Ombudsman’s decision, Head of professional negligence at TLW Solicitors, Sarah Spruce, said:

“Banks are in the best position to know how complex and manipulative scams are becoming. This combined with the vulnerability of some of their customers should put them on high alert for possible ‘red flags’ such as unusual or out of character transaction activity.

In Miss I’s case, the Ombudsman examined whether the scam victim was in any way to blame for what happened and firmly reached the conclusion that she wasn’t, and she should reasonably have expected her bank to look after her.

Victims of APP Fraud are often too ashamed or embarrassed to admit that they have been scammed, so it is important to keep vigilant, especially with those who are vulnerable and more susceptible to being scammed, such as the elderly, recently bereaved or financially naïve, such as young adults and students.”

If you think you have been scammed and lost out financially, get in touch with your bank and the police as soon as possible. You can also report any suspected scamming activity to Action Fraud, the National Fraud and Cyber Crime Reporting Centre.

In addition to criminal proceedings, as with Miss I’s case, you may have the basis of a complaint and claim against your bank if you feel that they did not do enough to protect your account. TLW Solicitors has a specialist APP fraud team with years of experience in successfully dealing with complaints to FOS. We understand the claims process, the information that needs to be gathered and the time limits that apply.

If you or someone you know has been the victim of a financial fraud, please get in touch. We work on a no win, no fee basis, so it will cost you nothing to make an enquiry or if the case is unsuccessful.

You can call us on 0800 169 5925, email info@tlwsolicitors.co.uk or complete the Callback form.

It is important to get advice as soon as possible as strict time limits can apply.

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Miss I should not take any blame for allowing the fraud to happen – she was a vulnerable and unwitting victim – and she should be fully compensated by Barclays for her loss.

Financial Ombudsman Service