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

Decision detail

Summary

Mrs W invested in J shares after being encouraged by a third party on a private messaging group, believing the traders were knowledgeable and experienced. When J shares collapsed from around $5-$7 to $0.40 within days, she complained to Robinhood, alleging it should have detected a pump and dump scam and either warned her or restricted trading. She also argued that section 27 FSMA should apply, making her agreement with Robinhood unenforceable because an unauthorised third party had induced her to invest. The ombudsman rejected both arguments, finding that Robinhood could not reasonably have detected the scam given it occurred outside the platform, that the share price movement was consistent with legitimate trading in a volatile stock, and that even if section 27 applied, section 28 would likely allow enforcement given Robinhood's good faith and lack of knowledge of the third party.

The Ombudsman's reasoning

The ombudsman found that while Robinhood has obligations to monitor trading under UK Market Abuse Regulations, it is difficult for a broker to identify pump and dump scams before or during the event, particularly when the promotion occurs outside the platform. J's share price movement, while substantial, could be explained by legitimate factors such as increased retail interest, momentum trading, or speculative buying in a volatile, illiquid stock. The ombudsman noted that J was a NASDAQ-listed security with no prior regulatory warnings. Regarding the section 27 FSMA argument, while the third party may have breached the General Prohibition, section 28 FSMA allows courts to enforce agreements if just and equitable, and the ombudsman found the circumstances substantially different from Adams because Robinhood had no knowledge of the third party's existence or involvement, no commercial arrangement with them, and entered transactions in good faith.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website