Ombudsman Rules Shared Liability after Victim Loses £21,000 to Cryptocurrency Scam

The victim, Mr E, contacted a ‘cryptocurrency adviser’ after seeing a social media advert for a cryptocurrency trading platform that piqued his interest. The adviser told Mr E he could expect returns of around £10,000 on investments of £1,000, 10% of which would be taken by the platform’s advisers as commission. He saw positive testimonials from previous clients on the platform’s website, which reassured him that the platform was legitimate, but he did no further research into it.

While on the platform, Mr E paid over £21,000 in total by moving the money from his Monzo bank account into his existing cryptocurrency ‘wallet’ and then onto the platform in several transactions. When he could not withdraw his money without paying commission, he realised he had been scammed.

A few months after the scam, Mr E reported it to Monzo, which refused to accept liability as he had moved the money from his Monzo account into a crypto wallet that he had already set up in his own name and had been using previously. The bank also cited the fact that Mr E had done very little to ensure that the trading platform was legitimate before engaging with it beyond reading reviews on the platform’s own website, which may also have been fake.

Mr E disagreed with Monzo’s initial assessment and took his case to FOS for an independent review. The investigator reviewed both sides of the complaint and upheld Mr E’s case in part, stating that:

• Monzo should have intervened after Mr E made his third payment, which may have stopped the scam from progressing.
• Mr E did not carry out reasonable due diligence before proceeding with the payments.

The investigator proposed that the liability for the money lost from the third payment onwards should be shared equally by Mr E and Monzo. Monzo disagreed with this proposal, and the case was escalated for a final decision by the Ombudsman.

As Monzo did not agree to the proposal put forward by the investigator, Mr E’s case was referred for a final decision. The Ombudsman reviewed the initial complaint, including all available evidence and arguments, to decide what was reasonable in the circumstances of the complaint.

The Ombudsman upheld the original decision and called for Mr E and Monzo to share liability for the third payment onwards for a number of reasons.

Monzo’s liability

The Ombudsman commented that Mr E was not automatically entitled to a refund under the Contingent Reimbursement Model (CRM) code, which some UK banks sign up to in order to provide enhanced protections to their customers, as Monzo is not a signatory of the CRM code. However, according to the Ombudsman “the regulatory landscape, along with good industry practice, also sets out a requirement for account providers to protect their customers from fraud and financial harm” meaning that the bank should still have been monitoring Mr E’s accounts for unusual, out of character transactions and intervening or preventing them where possible.

Mr E did have legitimate historical transactions to his cryptocurrency wallet from his Monzo account; however, these were four payments made over several weeks, and the change from this behaviour to three successive payments made on the same day – as part of the scam – should have been enough of a pattern to raise red flags. This sort of behaviour is also one of the hallmarks of a cryptocurrency investment scam, and Monzo should have been aware of this.

The Ombudsman concluded that Monzo should have contacted Mr E directly once the third payment was attempted to ask further questions about the reason for the transactions and that, at this point, the scam would likely have been uncovered.

The Ombudsman instructed Monzo to refund 50% of the payments made from the third £3,000 payment made on 13 May 2022, plus 8% interest.

Mr E’s liability

While Monzo could have made extra checks and intervened earlier to prevent the losses incurred from the third payment, the Ombudsman commented that Mr E “ought to have had some concerns along the way about what was happening”.

Mr E’s due diligence could not reasonably be classed as thorough because:

• The returns promised by the platform were not realistic, given the amount he invested and the timescales involved.
• He took the positive reviews on the website at face value and did not perform any further checks.

As a result, the Ombudsman concluded that Mr E should shoulder 50% of the liability for the funds lost from the third payment.

The rising popularity of cryptocurrency as an investment opportunity has led to a similar surge in cryptocurrency-related scams and illegal trading.

Fraudsters often use seemingly legitimate investment companies to lure in their victims, using a variety of techniques, including:

• Impersonating or claiming to be endorsed by well-known celebrities or public figures (often, this is not the case).
• Promising high returns with little or no risk.
• Running social media adverts with impressive claims about ‘quick wins’.

The majority of these scams utilise a type of fraud known as Authorised Push Payment (APP) fraud, which relies on the victim willingly moving money out of their own bank accounts, thus circumventing many of the security measures in place by banks and allowing the scam to fly under the radar. The victim will authorise the transaction as they believe it is legitimate – e.g. it is to be used for an investment – and the scammers will have access to the money immediately. In most cases, the scammers move the money on straight away, often overseas, making it virtually impossible to recover.

As the wider cryptocurrency industry remains largely unregulated for now, it is doubtful that any money lost would be protected by City watchdog, the Financial Conduct Authority (FCA) if you fell victim to a scam. However, if your money was transferred from a UK bank, you may be able to take action, and the TLW Solicitors cryptocurrency team is on hand to help.

All investments should be approached with caution; it is better to take time to understand the ins and outs of the opportunity, and invest wisely, than rush in and run into a scam. Some steps you can take to keep yourself and your money safe include:

• Keep login details and personal information private; never allow another person to access this information or open accounts or crypto wallets in your name, even if they claim to be a legitimate broker.
• Beware of elaborate marketing tactics; this is a hallmark of a scam. Genuine cryptocurrency investment opportunities are unlikely to push themselves as aggressively as the scammers do.
• Always take time to conduct due diligence and research the opportunity thoroughly; an honest broker will understand if you are cautious, while a scammer will keep pushing. An example would be to type the platform or advisor’s name followed by ‘scam’ into a search engine; this will bring up reviews and any news articles that might shed more light on the reality of the situation.
• Be realistic about what you can afford to invest, and don’t let anyone else convince you to keep spending; the value of investments can go up or down.
  Speak to an adviser regulated by the City watchdog, the Financial Conduct Authority (FCA) – spending a little money initially to save your finances in the long term could be a shrewd investment!
• Use the FCA’s Warning List to check if the firm you’re dealing with is on their radar as one to avoid and double-check the firm’s contact details on the FCA website.
• Don’t date and invest – a common cryptocurrency scam tactic is to befriend and form a ‘relationship’ with a victim via online dating apps or social media, also known as a romance scam. Don’t let someone you’ve never met tell you what to do with your money.

Familiarise yourself with our list of cryptocurrency scam red flags, and always enter into any investment with caution.

Sarah Spruce, Legal Director and Head of the Scams and Fraud team at TLW Solicitors, commented:

“Mr E isn’t the first scam victim to be taken in by a bold claim on social media, and he won’t be the last. These types of scammers know exactly what to say to hook potential investors and convince them to part with their money, which is why it is essential to do independent research before proceeding; never take what they say at face value. Reviews and investment returns can be faked, but losing money to a scam like this is, unfortunately, very real.

However, losing the money is not the end of the road, and if your bank refuses to compensate and claims the responsibility for the loss is entirely yours, there may be avenues to explore to recover your losses. Even if you feel embarrassed or ashamed about what has happened, my team can help.”