Robinhood and Massachusetts’ securities authorities are going head to head over the state’s fiduciary regulation. On Wednesday, the highest court in Massachusetts will deliberate over whether or not to bring back a state fiduciary duty rule that was at the center of an enforcement action securities regulators filed against the online brokerage Robinhood.
A subsidiary of Robinhood Markets Inc. and Massachusetts Secretary of State Bill Galvin will argue before the Supreme Judicial Court of the Commonwealth of Massachusetts on a state regulation that went into effect in 2020 and imposed a fiduciary duty on broker-dealers.
The rule, according to Robinhood, exceeds Galvin’s jurisdiction in some way. After Galvin in December 2020 accused Robinhood of encouraging inexperienced investors to undertake unsafe transactions, the company responded by filing a lawsuit, which was heard by a lower court last year, which sided with Robinhood.
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He contended that the state should withdraw Robinhood’s broker-dealer license because the company had broken a rule that he had established that increased the bar for brokers in terms of the investment advice they must provide.
Reuters had a look at the matter and shared views. They also tweeted in this regard link to the tweet is given below:
Robinhood, securities regulators face off over Massachusetts fiduciary rule https://t.co/G8p92pORNc pic.twitter.com/ufoZyjWDsP
— Reuters (@Reuters) May 3, 2023
A significant portion of the lawsuit against Robinhood was dismissed as a direct result of the judge’s decision to overturn the regulation. The case is currently on pause pending the conclusion of Galvin’s appeal.
Lawyers for Robinhood said in a court filing:
“The Secretary claims the power to outlaw whatever industry conduct he sees fit, without regard to this Court’s, or other states and federal regulators, contrary rules. The Secretary does not have that power.”
A spokeswoman for Robinhood declined to comment on the matter. In his lawsuit against Robinhood, Galvin alleged that the company had a responsibility to safeguard its clients and the funds they entrusted to it, but instead, it allowed its less experienced clients to engage in an infinite number of trades without first verifying the legitimacy of such deals.
As a result of its role at the epicenter of a retail trading craze in 2021 and the so-called “gamification” of investing, Robinhood has been the subject of intense legal and regulatory scrutiny.
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The spokesperson said in an email:
“Secretary Galvin feels strongly about the need to apply fiduciary duty standards to financial professionals. The Robinhood case is the perfect example of the need for such a rule in Massachusetts.
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