Lloyds Bank PLC · DRN-6065885

The complaint Mr J complains about Lloyds Bank PLC. He would like Lloyds to refund him the money he says he has lost to a scam. What happened Mr J decided to make an investment in a company I will refer to as G after being introduced by some friends who had already invested and were receiving good returns. G said that it was an electrical installation company who had an exclusive contract with a hotel chain installing air conditioning units in their hotel rooms. Mr J invested with his partner successfully in 2022, and when they were told of a new opportunity in 2023, they decided to go ahead. £60,000 was invested from Mr J’s account with Lloyds, and £20,640 was invested from his joint account with another bank. The investment entered into a number of three-month cycles, with Mr J and his partner receiving a total of £7,693.02 in returns which was paid to their joint account. G went into administration in September 2024. In November 2024, the two directors were arrested and are currently under investigation for fraud by misrepresentation. Mr J made a complaint to Lloyds about what had happened, but Lloyds didn’t uphold it. It said this was a failed investment – not a scam. So, Mr J brought his complaint to this Service. Our Investigator looked into things and thought that the complaint should be upheld. Lloyds disagreed and asked for an Ombudsman to make a final decision – so the complaint has been passed to me to consider. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I have decided to uphold this complaint for broadly the same reasons as our Investigator. It’s important to highlight that with cases like this, in deciding whether there was in fact a scam, I need to weigh up the available evidence and make my decision about what I think is likely to have happened on the balance of probabilities – in other words what I think is more likely than not to have happened in the circumstances. When considering what is fair and reasonable, I’m also required to take into account: relevant law and regulations; regulatory rules, guidance and standards; codes of practice;

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and, where appropriate, what I consider having been good industry practice at the relevant time. In broad terms, the starting position in law is that a firm is expected to process payments and withdrawals that a customer authorises, in accordance with the Payment Services Regulations and the terms and conditions of the customer’s account. However, where the customer made the payment as a consequence of the actions of a fraudster, it may sometimes be fair and reasonable for the bank to reimburse the customer even though they authorised the payment. Lloyds was a signatory of the Lending Standards Board’s Contingent Reimbursement Model (the CRM Code) which took effect on 28 May 2019 until it was retired on 7 October 2024. The Code required firms to reimburse customers who had been the victims of certain types of scams, in all but a limited number of circumstances. But customers are only covered by the CRM Code where they have been the victim of an authorised push payment (APP) scam – as defined within the CRM Code. DS2(2)(b) of the CRM Code says it doesn’t apply to: “private civil disputes, such as where a Customer has paid a legitimate supplier for goods, services or digital content but has not received them, they are defective in some way, or the Customer is otherwise dissatisfied with the supplier” So, it doesn’t cover a genuine investment or a genuine business that subsequently failed. I’ve therefore thought about whether the purpose for Mr J having made these payments was a legitimate one, whether his intentions broadly aligned with G’s, and if not, whether this was due to dishonest deception on the part of G. I’ve therefore thought about what G’s intentions were when receiving Mr J’s funds. Having done so I agree with the outcome reached by our Investigator that G did not use investor funds in the manner it set out to investors and that this was due to dishonest deception. As these have already been set out in detail, I don’t intend to repeat them all here, but to highlight some of the key findings: • While a genuine contract with a hotel chain did exist, the value of the contract between 2021 and 2024 was £4.4m. However, when G went into administration, it owed £25.3m to investors. The levels of revenue quoted by G haven’t been seen on the receiving accounts. • Administrators have confirmed that “We cannot confirm with certainty how much of that (investor) money was used to purchase units or for the ordinary course of business, but it is significantly lower than the amount raised by the investors.” This raises concerns about why G continued to accrue such high levels of investment for work that wasn’t being completed on this scale. • G claimed to have a credit insurance policy which provided protection to investors. However, the insurer has confirmed that no such policy exists and that the reference number quoted doesn’t match its formatting. • Administrators have confirmed spending by G on the following: - Around $6m spent sponsoring a motor racing team; - £500,000 used by one of G’s directors for home improvements that has not been paid back;

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- Around £4m to international accounts that G claims was made towards an investment that turned out to be a scam; - A further £2m sent internationally for an investment that G also claims has committed fraud against G. • We’ve also seen evidence of G advising investors of a new contract worth £3.6m with the hotel chain in question, but administrators have found no evidence of the suggested contract. Lloyds has argued that a difference between contract income and investor funds does not prove dishonest intent at the time of payment, and that genuine businesses can often plan for future growth that doesn’t materialise as expected. However, here the contract value over an extended period was so notably lower than investment payments received, it calls into question why G continued to accept investment payments. Additionally, Mr J’s contract with G suggests that G would be able to produce returns in 90-day cycles, with a loan term of one year, meaning a short turnaround of actioning investor funds. However, it seems apparent that if G had such a high level of accruing investment in comparison to invoicing this was never going to be achieved, and yet it continued to receive further investments. Lloyds has stated that it’s seen no evidence to confirm that the insurance referenced by G did not exist, but in any event genuine mistakes can be made and the policy may have lapsed or been misunderstood. However, G provided the insurance schedule to investors confirming the policy number and policy period, which the insurer has confirmed to Police did not exist – so I disagree that there is a likelihood of this being an error, rather than intentional deception by G. Lloyds also argued that business spending that appears unusual is not, by itself proof of a scam - and if G was running a Ponzi scheme, charges would be brought against the directors. While I agree with business spending not being proof on its own, I’ve set out a number of other reasons here for why G’s overall behaviour is more indicative of a scam than a failed business, spending being just one of them. As mentioned, the payments investors were making were for short term loan investments and so it seems difficult to explain how the vast majority of funds being used in other ways could ever have been in line with what G was offering. Additionally, while charges may or may not be brought against directors in future, I am conscious that any criminal proceedings that may ultimately take place have a higher standard of proof (beyond reasonable doubt) than I am required to apply (the balance of probabilities). The Lending Standards Board has said that the CRM Code does not require proof beyond reasonable doubt that a scam has taken place before a reimbursement decision can be reached. Nor does it require a firm to prove the intent of the third party before a decision can be reached. I’ve reminded myself that Parliament has given ombudsmen the job of determining complaints quickly and with minimum formality. In view of this, I think that it would not be appropriate to wait to decide Mr J’s complaint unless there is a reasonable basis to suggest that the outcome of any external investigation may have a material impact on my decision over and above the evidence that is already available, which I don’t consider is the case here. Therefore, considering all evidence holistically, I am satisfied that it is more likely G was not acting legitimately, since its intentions did not align with Mr J’s intentions, and I am satisfied that G was dishonest in this regard. It follows that I’m satisfied Mr J was the victim of a

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scam. Is Mr J entitled to a refund under the CRM code? As referenced above, Lloyds was a signatory of the CRM Code when these payments were made, which required firms to reimburse customers who had been the victims of APP scams like this, in all but a limited number of circumstances and it is for Lloyds to establish that a customer failed to meet one of the listed exceptions set out in the CRM Code. Under the CRM Code, a bank may choose not to reimburse a customer if it can establish that*: • The customer ignored what the CRM Code refers to as an “Effective Warning” by failing to take appropriate action in response to such an effective warning • The customer made payments without having a reasonable basis for believing that: the payee was the person the Customer was expecting to pay; the payment was for genuine goods or services; and/or the person or business with whom they transacted was legitimate *Further exceptions outlined in the CRM Code do not apply to this case. Lloyds hasn’t shown or said that it had any interventions with Mr J at the time the payments were made – so I can’t say that Mr J ignored any warnings, and therefore the first exception is not applicable. I also think that Mr J had a reasonable basis for belief in the investment. Lloyds doesn’t appear to disagree with this, but for completeness, Mr J had already successfully invested with G previously, and the façade presented by G seemed very professional. So, I have no reason to suggest that Mr J would have thought he was being scammed and that G was not a legitimate business. Putting things right Mr J had a previous investment with G, and received returns of £12,821.76 – and although this investment appeared to run successfully, I am not persuaded that it was a legitimate investment, given what we now know about G. Therefore, I think it fair that these returns be taken into account when calculating redress due. Mr J has also brought another complaint to this Service with his partner against the other bank they made payments to the investment from – and returns from both investments were paid into this joint account. This complaint is also being upheld by this Service, and like our Investigator I do not think it fair that it should benefit from a deduction of all returns, given that the payments from Lloyds were actually larger. Therefore, credits from the scam should be applied proportionately in relation to the sides of the payments made. This means that Lloyds benefits from a reduction of £15,263.91 (and the other bank £5,250.81). Lloyds Bank PLC should therefore: • Reimburse Mr J the remaining £44,736.03 lost to the scam.

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• Pay Mr J 8% simple interest from the date it first declined Mr J’s claim (less any lawfully deductible tax) My final decision I uphold this complaint. Lloyds Bank PLC Under the rules of the Financial Ombudsman Service, I’m required to ask Mr J to accept or reject my decision before 22 April 2026. Claire Pugh Ombudsman

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