Not upheld: investment losses from pump and dump scam / alleged failure of duty of care complaint against Hargreaves Lansdown Asset Management Limited

Decision detail

Summary

Mr J complained that Hargreaves Lansdown Asset Management Limited failed in its duty of care by allowing him to trade in Ostin Technology Group (OST) shares, which he subsequently discovered was a pump and dump scam, resulting in losses of £68,000. Mr J argued that HL should have identified heightened risk conditions through abnormal price behaviour and issued stock-specific warnings. The ombudsman found that HL's execution-only service meant the customer was responsible for his own investment decisions, OST was listed on NASDAQ with no prior regulatory warnings or suspensions, and pump and dump scams operate primarily through social media and off-platform communications not visible to the platform. The ombudsman concluded that price and volume fluctuations are common market occurrences and do not indicate market manipulation, and that the fraud was only confirmed after the event. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman found that HL provided an execution-only service where the customer was responsible for his own investment decisions and risk management. OST was listed on NASDAQ, an established and regulated exchange, and there were no regulatory warnings or suspensions prior to the collapse. While price and volume fluctuations occurred during the trading period, these are common market occurrences and do not in themselves indicate market manipulation. Execution-only platforms have limited visibility of pump and dump scams, which operate primarily through social media and off-platform communications. The coordinated fraud was only confirmed after the event through US Department of Justice action, and therefore could not have been foreseeable to HL at the time of trading. HL provided general scam warnings and alerts to customers, which satisfied its regulatory obligations.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website