Vlad Tenev and Baiju Bhatt react to the first trade at Robinhood Markets IPO Listing Day on July 29, 2021 in New York City.
Cindy Ord | Getty Images
A Massachusetts judge on Wednesday gave state securities regulators a major setback in their enforcement action against online brokerage Robinhood by invalidating the state’s new fiduciary duty rule underlying the case.
Suffolk County Superior Court Judge Michael Ricciuti in Boston concluded that Massachusetts Secretary of State Bill Galvin did not have the authority to enact a rule in March 2020 raising the investment advice standard for brokers.
Galvin accused the app-based service in December 2020 of using strategies that treated trading like a game to lure in young, inexperienced customers, including by raining confetti on the user’s screen for every trade made on its app.
Galvin, the state’s top securities commissioner, has filed an administrative suit seeking to have Robinhood’s broker-dealer license revoked in the state. Parts of the case were based on alleged breaches of the fiduciary duty rule.
This rule went beyond a standard passed by the US Securities and Exchange Commission in 2019 by giving broker-dealers a fiduciary obligation to make investments without regard to the interests of anyone but their clients.
However, Ricciuti said the rule overrode state law and that nothing in the state’s securities law indicates that lawmakers intended to give Galvin the power to do so by making regulations.
He put his decision on hold to give Galvin, a Democrat, time to appeal. A spokesman for Galvin did not immediately respond to a request for comment.
Dan Gallagher, Robinhood’s chief legal office, welcomed the ruling in a statement, saying Galvin “continued to mischaracterize and disparage Robinhood’s platform and clients without any legal basis.”