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 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 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.
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 alleged that the Menlo Park, California-based company used strategies that treated trading like a game to lure young, inexperienced customers and encourage them to engage in risky trading through its online platform, including by having confetti rain down on the user’s screen for each trade made on its app.
In a statement, Galvin, a Democrat, welcomed Friday’s ruling and said he looked forward to proceeding with the New England state’s administrative case against Robinhood, which seeks to revoke its broker-dealer license in Massachusetts.
“This landmark decision affirms the fiduciary duty of brokers to their customers and vindicates the role of my Securities Division to principally, but aggressively protect investors and police broker-dealer misconduct,” Galvin said in a statement.”
Robinhood did not immediately respond to a request for comment.
(Reporting by Nate Raymond in Boston; editing by Jonathan Oatis)