CALIFORNIA, (Washington Insider Magazine) – A Massachusetts judge on Thursday rejected Robinhood’s bid to block state regulators from moving forward with their enforcement action alleging that the online brokerage encourages inexperienced investors to place risky trades without limits.
Suffolk County Superior Court Judge Kenneth Salinger said Robinhood could continue challenging in court the validity of the state’s new fiduciary rule, which underlies Massachusetts Secretary of State Bill Galvin’s case against it.
But Salinger said it did not follow that he should in the interim block Galvin, who oversees the state’s securities division, from moving forward with his case, noting that some of the claims were not based on the new regulation.
“If the court were to strike down the challenged regulation, the division would still be entitled to press its separate claims that Robinhood’s alleged conduct was nonetheless unethical or dishonest,” Salinger wrote.
He requested further briefing on whether Robinhood’s challenge to the fiduciary rule should be put on hold pending the outcome of Galvin’s administrative case, though he said it would be “unusual” for a judge in his position to do so.
Debra O’Malley, a spokeswoman for Galvin, said he was pleased with the ruling. Menlo Park, California-based Robinhood had no immediate comment.
Galvin announced the case against Robinhood in December, before the social media-driven rally in stocks like GameStop, caused by retail investors buying the stocks on platforms that included Robinhood and other apps.
He accused the app-based service of using strategies that treated trading like a game to lure young, inexperienced customers, including by having confetti rain down on the user’s screen for each trade made on its app.
Robinhood sued in April, arguing Galvin lacked authority to adopt the fiduciary rule and that it conflicted with federal law. The Securities and Exchange Commission in 2019 adopted its own rule for brokerages that rejected the standard Galvin was enforcing.