By Aisling Finn on Thursday 20 May 2021
The case marks the first in ten years that the Financial Ombudsman has upheld a case against Crowdcube.
In what could be a bad sign for crowdfunding platforms, the Financial Ombudsman has ordered Crowdcube to repay an investor.
Crowdcube has been told to reimburse an unnamed retail investor £18,000, as first reported by The Times, for their stake in Zing Zing, a Chinese takeaway startup, over an “at best unclear, and at worst misleading” pitch on the platform.
The Financial Ombudsman wrote in its decision on the matter: “The crux of Mr S’ complaint is that Company A didn’t use the funds raised in the way in which Crowdcube promoted it would. However, there is a distinct lack of information provided in the pitch about what Company A wanted to raise funds for.”
“Clearly, how a business intends to use funds raised through crowdfunding is essential information which should be provided to investors to enable them to make a reasoned decision to invest or not. Providing all relevant and essential information is especially important considering Crowdcube was promoting high-risk, non-readily realisable securities to Mr S.”
Zing Zing’s campaign, which closed in 2018, saw more than £500,000 raised on Crowdcube, with Ombudsman Ben Waites concluding that Crowdcube had failed to provide investors with enough information and that it knew the startup’s expansion plans were somewhat dubious.
A spokesperson from Crowdcube told AltFi that it “strongly disagrees with the Financial Ombudsman’s decision with regards this case” and that it followed “stringent due diligence processes” to ensure the pitch was up to par.
“This is the first time the Financial Ombudsman has upheld a case against us over the last ten years and we do not believe this will become a trend,” the spokesperson continued.
“We are confident that the due diligence processes we have in place for all of our campaigns satisfy the requirements platforms like us are under. The company’s pitch was reviewed according to our Due Diligence Charter and approved as a financial promotion to ensure it was fair, clear and not misleading.”
Crowdcube vehemently denies any wrongdoing in this case and believes the Ombudsman has unfairly blamed it for the company’s failure.
As per Companies House, Zing Zing has been in liquidation since June 2020.