In win for Robinhood, Massachusetts judge declares ‘fiduciary’ rule invalid

Vlad Tenev and Baiju Bhatt react to the first trade on Robinhood Markets IPO Listing Day on July 29, 2021 in New York City.

Cindy Ord | Getty Images

A Massachusetts judge on Wednesday dealt state securities regulators a major setback in their enforcement action against online brokerage Robinhood by declaring the state’s new fiduciary duty rule that underlies the case invalid.

Suffolk County Superior Court Judge Michael Ricciuti in Boston concluded that Massachusetts Secretary of State Bill Galvin lacked the authority to adopt a rule in March 2020 that raised the investment-advice standard for brokers.

Galvin in December 2020 accused the app-based service of using strategies that treated trading like a game to lure young, inexperienced customers, including by having confetti rain down on the user’s screen for each trade made on its app.

Galvin, the state’s top securities regulator, through an administrative case, has sought to revoke Robinhood’s broker-dealer license in the state. Parts of the case were based on alleged violations of the fiduciary duty rule.

That rule went beyond a standard the US Securities and Exchange Commission adopted in 2019 by requiring broker-dealers have a fiduciary obligation to provide investment without regard to the interests of anyone but their customers.

But Ricciuti said the rule overrode state law and that nothing in the state’s securities statute suggests the legislature intended to give Galvin the authority to do so through rule making.

He put his decision on hold to allow Galvin, a Democrat, time to pursue an appeal. A spokesperson for Galvin did not immediately respond to a request for comment.

Dan Gallagher, Robinhood’s chief legal office, in a statement welcomed the ruling, saying Galvin has “consistently mischaracterized and disparaged Robinhood’s platform and customers without any legal basis.”


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