Massachusetts court rejects Robinhood's challenge to state investment advice rule
By Nate Raymond
BOSTON (Reuters) -Massachusetts' top court on Friday handed state securities regulators a major victory in their enforcement action against online brokerage Robinhood (NASDAQ:HOOD) by holding that a state fiduciary duty rule that is central to the case is valid.
The Massachusetts Supreme Judiciary Court reversed a lower-court judge's decision in favor of Robinhood in a lawsuit it filed after Massachusetts Secretary of State Bill Galvin in 2020 accused it of encouraging inexperienced investors to place risky trades.
That case has been on hold and an administrative trial in it was delayed while Galvin appealed a judge's March 2022 ruling invalidating a rule stating that broker-dealers have a fiduciary obligation to provide investment advice without regard to the interests of anyone but their customers.
Lucas Moskowitz, Robinhood's deputy general counsel and head of government affairs, in a statement said: «We are disappointed in today’s decision and remain committed to providing access to the markets for our Massachusetts customers.»
That 2020 state fiduciary duty rule went beyond a standard the U.S. Securities and Exchange Commission adopted a year earlier and was a key part of the case Galvin, the state's top securities regulator, filed against Robinhood.
Galvin had alleged Robinhood used strategies that treated trading like a game to encourage young, inexperienced customers to engage in risky trading through its online platform. Galvin is seeking to have Robinhood's state broker-dealer license revoked.
Menlo Park, California-based Robinhood denied the allegations and argued Galvin overstepped his authority by adopting a regulation it claimed improperly overrode state law governing stockbrokers' duties
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