Robinhood,
the commission-free brokerage, has suffered a major defeat in its case against the
Massachusetts Secretary of State, Bill Galvin. The Supreme Judicial Court of
Massachusetts (SJC) Friday ruled that a state fiduciary duty rule that is central to the
case is valid, according to Reuters.
Massachusetts Supreme
Court Backs Regulator
In December
2020, Galvin initiated an enforcement action against Robinhood, claiming that
the online brokerage failed to protect its customers and their money. The
Secretary alleged that Robinhood treated trading as a game and implemented strategies
to lure young and inexperienced traders. For instance, the online broker allegedly rained down confetti on the phone screens of its traders after the execution of each trade.
Furthermore,
Gavin argued that the alleged failure violated the state’s fiduciary duty rule
which raised investment-advice standards for brokers in early 2020. He,
therefore, sought to revoke the online trading platform’s broker-dealer license.
However, in March last
year, a trial court, the Suffolk County Superior Court in Boston, ruled in favour of
Robinhood. The court
argued that federal laws took precedence over the state regulator’s
stipulations. Additionally, Judge Michael Ricciuti, who heard the case, determined that Galvin overstepped his jurisdiction by implementing a regulation that was at odds
with federal legislation.
Earlier in
May, Finance Magnates had reported that Galvin and
Robinhood would argue the validity of the state regulator’s
fiduciary duty rule at the highest court in Massachusetts. This came after Gavin appealed against the ruling at the SJC.
Meme Stock Frenzy: Robinhood
Prevails in Court
Meanwhile,
Robinhood recently secured victory in
another case filed by a
group of former traders. Earlier this month, an appellate court in the United
States threw out certain
claims made
against the online broker for imposing trading restrictions during the
meme stock frenzy that occurred three years ago.
In 2021,
some dissatisfied traders took legal action against
Robinhood, alleging
market manipulation after the broker restricted trading of
several of meme stocks. The price of the stocks, which include those of
Gamestop, AMC Entertainment and Blackberry, had been pumpe
