Trading app Robinhood said on Thursday that the Massachusetts Securities Division was considering revoking its license to operate in the state over its alleged failure to adequately protect customers and their assets.
April 16, 2021 | AtoZ Markets – Massachusetts’ top securities regulator has sued to revoke Robinhood’s license to act as a broker in the state, escalating a legal fight with the trading app. Robinhood, in turn, sued to block Massachusetts from asserting its authority to regulate Robinhood under a rule that went into effect last year.
William Galvin, the Secretary of the Commonwealth of Massachusetts, claims that Robinhood “has continued a pattern of aggressively inducing and enticing” young investors since he first sued the company in December over its practices. He claims Robinhood is angling for a piece of their stimulus checks and offering risky margin loans in ways that harm customers.
Robinhood filed its own suit on Thursday, contending that Massachusetts doesn’t have the authority that Galvin thinks it does. In September, the state introduced its own fiduciary rule forcing broker-dealers that operate in the state to follow a fiduciary standard when recommending securities for their clients — avoiding, eliminating or mitigating conflicts of interest in their advice.
The Securities and Exchange Commission (SEC) had been debating imposing a similar rule, but chose instead to create a somewhat looser standard that asked brokers to disclose conflicts. Robinhood claims that the Massachusetts rule is “invalid on its face” because of its conflicts with the federal rule. And Robinhood asserted, as it has before, that it’s not in the business of making investment recommendations.
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“We don’t believe our customers are as naive as the Massachusetts Securities Division paints them to be,” Robinhood said in a statement. “Creating a list of companies that make apparel is not a recommendation. Giving people information about the performance of the stocks they own or watch is not a recommendation.”
Galvin, however, said in a statement that Robinhood’s suit “is another example of Robinhood’s complete rejection of responsibility to their customers. It’s a tactic I’ve seen employed by many parties subject to enforcement actions in my tenure.”
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