Not upheld: Investment mis-selling complaint against Robinhood U.K. Ltd

Decision detail

Summary

Mr W invested in shares of company J after being persuaded by a third party on a private messaging group, purchasing between 27 March and 1 April 2025 at around $7 per share. On 2 April 2025, the shares collapsed to around $1 and fell further to $0.40, causing significant losses. Mr W complained that Robinhood should have detected the pump and dump scam through market abuse monitoring and either warned him or restricted trading, and alternatively argued that section 27 FSMA required unwinding of his agreement with Robinhood due to the unregulated third party's involvement. The ombudsman rejected both arguments, finding that Robinhood's execution-only model made Mr W responsible for his own decisions, that the price action was not objectively suspicious given J's volatile nature and NASDAQ listing, and that section 27 FSMA did not apply because Robinhood had no knowledge of the third party and acted in good faith.

The Ombudsman's reasoning

The ombudsman found that Robinhood's execution-only account model meant Mr W was solely responsible for his investment decisions. While Robinhood has obligations to monitor for market abuse under UK Market Abuse Regulations, it is difficult for a broker to identify pump and dump scams before they occur, particularly when the promotion occurs outside the platform via private messaging. The price action in J shares, while substantial, was not objectively sufficient to alert Robinhood to potential unlawful manipulation, especially given J was a volatile, illiquid NASDAQ-listed stock where large price movements could result from legitimate trading activity. Regarding the section 27 FSMA argument, even if the third party breached the General Prohibition, section 28 would likely allow a court to enforce the agreement as Robinhood had no knowledge of the third party's existence or involvement, had no commercial arrangement with them, and acted in good faith.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website