Massachusetts Court Rules in Favor of Robinhood

A Massachusetts court on Wednesday ruled in favor of Robinhood as the brokerage platform went to court against an enforcement action of Massachusetts Secretary of State Bill Galvin, who accused the broker of encouraging inexperienced traders to place risky trades.

Galvin moved against Robinhood in December 2020, alleging that the commission-free broker treated trading as a game and implemented strategies to lure young and inexperienced traders.

He even mentioned Roinhood’s use of confetti to rain down on the phone screen after the  execution  of each trade.

Galvin argued that Robinhood violated its fiduciary duty as the state of Massachusetts raised its investment-advisory standard in early 2020. He asked to revoke the broker-dealer license in the state.

However, the state rule superseded a federal regulation adopted by the Securities and Exchange Commission (SEC) in 2019 that requires broker-dealers to have a fiduciary obligation to provide investment services with only the interest of customers in mind.

Conflicted Rules

Boston’s Suffolk County Superior Court Judge Michael Ricciuti ruled that the federal rule overrode the state requirement. He further wrote that Galvin went beyond his authority to implement a  regulation  that conflicted with federal law.

“[Galvin has] consistently mischaracterized and disparaged Robinhood’s platform and customers without any legal basis,” Robinhood Chief Legal Officer, Dan Gallagher said in a statement.

The court ruling, however, impacts only a part of Galvin’s administrative action against the commission-free broker. He can still pursue the claims that the broker adopted unethical practices and even failed to adequately supervise employees.

Galvin can also appeal the Massachusetts court ruling.

Robinhood also had its bouts with other federal regulators in the United States and paid tens of millions of dollars in fines for violations. Most recently, the broker settled with Vermont’s financial regulator, paying $640,000 for outages and account supervision issues.

A Massachusetts court on Wednesday ruled in favor of Robinhood as the brokerage platform went to court against an enforcement action of Massachusetts Secretary of State Bill Galvin, who accused the broker of encouraging inexperienced traders to place risky trades.

Galvin moved against Robinhood in December 2020, alleging that the commission-free broker treated trading as a game and implemented strategies to lure young and inexperienced traders.

He even mentioned Roinhood’s use of confetti to rain down on the phone screen after the  execution  of each trade.

Galvin argued that Robinhood violated its fiduciary duty as the state of Massachusetts raised its investment-advisory standard in early 2020. He asked to revoke the broker-dealer license in the state.

However, the state rule superseded a federal regulation adopted by the Securities and Exchange Commission (SEC) in 2019 that requires broker-dealers to have a fiduciary obligation to provide investment services with only the interest of customers in mind.

Conflicted Rules

Boston’s Suffolk County Superior Court Judge Michael Ricciuti ruled that the federal rule overrode the state requirement. He further wrote that Galvin went beyond his authority to implement a  regulation  that conflicted with federal law.

“[Galvin has] consistently mischaracterized and disparaged Robinhood’s platform and customers without any legal basis,” Robinhood Chief Legal Officer, Dan Gallagher said in a statement.

The court ruling, however, impacts only a part of Galvin’s administrative action against the commission-free broker. He can still pursue the claims that the broker adopted unethical practices and even failed to adequately supervise employees.

Galvin can also appeal the Massachusetts court ruling.

Robinhood also had its bouts with other federal regulators in the United States and paid tens of millions of dollars in fines for violations. Most recently, the broker settled with Vermont’s financial regulator, paying $640,000 for outages and account supervision issues.

Source: https://www.financemagnates.com/forex/brokers/gamifying-trading-massachusetts-court-rules-in-favor-of-robinhood/