Who carries the cost when an investor gets scammed? Which case won?
In a case study reported in 2016 by the UK Financial Ombudsman, an investor in the United Kingdom, “Ms Q”, had her emails hacked by fraudsters, who impersonated her and sent emails purporting to be from her to her financial adviser.
Large sum transferred following receipt of emailed instructions
The emails asked the financial adviser to withdraw £250,000 from her investment bond and transfer the money to a solicitor’s bank account in Hong Kong. However, the investment provider told the financial adviser that they could not trace the solicitor’s firm and so would not be transferring money to that account.
The financial adviser then received a follow-up email purporting to be from Ms Q which provided details of a bank account in her name with a bank in the United Kingdom. The email instructed the financial adviser to transfer £250,000 to this bank account.
At this stage the investment provider pointed out that the bank account details were different to the ones they had on file for Ms Q. However, the financial adviser confirmed that the new bank account details were correct and finalised the transfer of the money to that account.
Investor realises her emails have been hacked
The investment provider then sent a letter to Ms Q, confirming that the £250,000 had been withdrawn and transferred to the new bank account in accordance with her instructions.
This was the first that Ms Q had heard of the transaction. Understandably, she was aghast and rang her financial adviser, who explained that he had completed the transaction in accordance with the instructions he had received from her via email.
Ms Q realised that her email account must have been hacked, so the financial adviser had been receiving emails which came from Ms Q’s email address but which she had not actually sent.
Investor recovers some, not all of her money
After Ms Q reported the fraud to the police, she managed to recover around £170,000, leaving her with a shortfall of £80,000. Ms Q asked the financial adviser to make up this shortfall, arguing that it should have taken better care of her money.
When the financial advisor offered to pay only a quarter of the money that Ms Q had lost, the case ended up before the UK Financial Ombudsman, which had to determine whether the financial adviser was responsible for Ms Q’s loss.