Not upheld: Investment mis-selling complaint against Hargreaves Lansdown Asset Management Limited (HLAM)

Decision detail

Summary

Mr S complained that Hargreaves Lansdown Asset Management Limited (HLAM) failed to protect him from a pump and dump investment scam involving shares in company J, which he purchased between 27 March and 1 April 2025 at approximately $7 per share before they collapsed to around $0.40. Mr S had been induced to invest through an unregulated third party operating a private messaging group on social media. He argued that HLAM should have detected the market manipulation through its monitoring obligations under UK Market Abuse Regulations and either warned him or restricted trading, and alternatively that the agreement should be unwound under section 27 FSMA following the Adams case law. The ombudsman rejected both arguments, finding that it was not reasonably foreseeable for HLAM to detect the scam given that the promotion occurred entirely outside its platform and the price action was consistent with legitimate trading in a volatile, illiquid stock with no prior regulatory warnings, and that even if section 27 FSMA applied, section 28 would likely permit enforcement given HLAM's complete lack of knowledge of the third party's involvement.

The Ombudsman's reasoning

The ombudsman found that while HLAM has some obligations to monitor trading under UK Market Abuse Regulations, it is difficult for a broker platform to identify a pump and dump scam before or during the event, particularly when the promotion occurs entirely outside the platform through social media and private messaging. The price action in J shares, while substantial, was not objectively sufficient to alert HLAM to potential impropriety given the stock's volatile and illiquid nature, the lack of industry news to explain the increase, and the absence of any regulatory warnings from NASDAQ or US authorities. Regarding the Adams case law argument, while the ombudsman acknowledged that an unauthorised third party may have breached the General Prohibition by providing investment advice, section 28 FSMA allows a court to enforce an agreement if it is just and equitable to do so, particularly where the provider had no knowledge of the third party's involvement. Unlike Adams, HLAM had no awareness of the third party's existence or involvement, no commercial arrangement with it, and entered into transactions in good faith.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website