The Robinhood application is displayed on a screen in this photo illustration January 29, 2021. REUTERS / Brendan McDermid / Illustration
Massachusetts regulators on Thursday sought the revocation of the Robinhood broker-dealer license, after accusing it of encouraging inexperienced investors to place risky transactions without limits, while online brokerage sued to invalidate a new rule. the basis of the case.
Massachusetts Secretary of State Bill Galvin has asked for revocation in a revised administrative case announced shortly after Robinhood sued the Boston state court to challenge a standard of fiduciary conduct adopted by his office last year.
“We don’t think our customers are as naive as the Massachusetts division of securities considers them,” Robinhood said in a statement.
Galvin announced the case against Robinlo in Menlo Park, California, in December, before the social media rally in stocks such as GameStop, led by retail investors using Robinhood and other applications, raised their stock prices.
Galvin, the state’s main securities regulator, accused Robinhood of using aggressive tactics to lure inexperienced investors and of failing to prevent disruptions to its platform. Read more
He claimed that the application-based service used strategies that treated trading as a game to attract young and inexperienced customers, including through a shower of confetti for each transaction made in his application.
The case is the first enforcement action brought under a state fiduciary rule that came into force in September, raising the standard for investment advice for brokers.
Robinhood, in its lawsuit, argued that Galvin did not have the authority to overturn a long-held Massachusetts court finding that brokerage firms like it are not considered trusts of their clients.
He said the state legislature had done nothing to change the court’s ruling and that it did not have the authority to adopt its rule.
Robinhood said the rule also creates an obstacle to federal regulation, saying that in 2019 the U.S. Securities and Exchange Commission adopted its own rule governing brokerage firms that explicitly rejected Galvin’s standard. .
Galvin, considered nationally as an author of aggressive securities regulation, in a statement called the process “another example of Robinhood’s complete disclaimer of its customers.”
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