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

Decision detail

Summary

Mr K complained that Robinhood U.K. Ltd failed to protect him from a pump and dump investment scam involving shares in company J. He purchased J shares between 25 March and 2 April 2025 after being encouraged by an unauthorised third party on a private messaging group, and suffered significant losses when the share price collapsed. Mr K argued that Robinhood should have detected the market manipulation, warned him, or restricted trading, and alternatively that the agreement should be unwound under section 27 FSMA following the Adams case. The ombudsman did not uphold the complaint, finding that Robinhood had no knowledge of the third party or the promotional activity, that the price action in J shares was not objectively suspicious enough to warrant intervention, and that even if section 27 applied, section 28 would likely allow enforcement of the agreement given Robinhood's good faith conduct.

The Ombudsman's reasoning

The ombudsman found that Robinhood, as an execution-only broker, was not responsible for assessing the suitability of Mr K's trades. While Robinhood has obligations to monitor for suspicious activity under UK Market Abuse Regulations, it is difficult for a broker to identify a pump and dump scam before or during the event, particularly when all promotional activity occurs outside its 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 price action was not objectively sufficient to alert Robinhood to potential impropriety. Regarding the Adams case law, while an unauthorised third party may have breached the General Prohibition by giving investment advice, section 28 FSMA allows a court to enforce an agreement if it is just and equitable. The ombudsman found that Robinhood had no knowledge of the third party's existence or involvement, had no commercial arrangement with them, and entered into transactions in good faith, distinguishing this case from Adams. Therefore, a court would likely exercise its discretion under section 28 to enforce the agreement.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website