A Massachusetts choose on Wednesday dealt state securities regulators a serious setback of their enforcement motion towards on-line brokerage Robinhood by declaring the state’s new fiduciary obligation rule that underlies components of the case invalid.
Suffolk County Superior Courtroom Decide Michael Ricciuti in Boston ruled in a lawsuit Robinhood filed after Massachusetts Secretary of State Invoice Galvin in December 2020 accused it of encouraging inexperienced traders to position dangerous trades.
The choice impacts solely a part of Galvin’s administrative enforcement motion, and he should still pursue claims that Robinhood’s conduct was unethical or dishonest and that it did not adequately supervise staff.
Galvin, the state’s prime securities regulator, alleged Robinhood used methods that handled buying and selling like a sport to lure younger, inexperienced prospects, together with by having confetti rain down on the consumer’s display screen for every commerce made on its app.
He argued that Robinhood violated a fiduciary obligation rule he adopted in early 2020 that raised the investment-advice commonplace for brokers and that its broker-dealer license within the state ought to be revoked.
The Massachusetts rule went past a normal the U.S. Securities and Trade Fee adopted in 2019 by requiring broker-dealers have a fiduciary obligation to offer funding with out regard to the pursuits of anybody however their prospects.
However Ricciuti wrote the rule improperly overrode Massachusetts state legislation governing stockbrokers’ duties and that Galvin went past his authority by adopting a regulation that conflicted with federal legislation.
He put his resolution on maintain to permit Galvin, a Democrat, time to attraction. Debra O’Malley, a spokesperson for Galvin, mentioned his workplace is reviewing the choice and weighing its choices.
An administrative trial is scheduled for Sept. 26.
Dan Gallagher, Robinhood’s chief authorized workplace, in a press release welcomed the ruling, saying Galvin has “persistently mischaracterized and disparaged Robinhood’s platform and prospects with none authorized foundation.”
(Reporting by Nate Raymond in Boston; Enhancing by Sam Holmes and David Gregorio)
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