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Massachusetts Secretary of State Bill Galvin sought the
revocation in a revised administrative case announced shortly
after Robinhood sued in state court in Boston to challenge a
fiduciary standard of conduct his office adopted last year.
Robinhood, which is seeking to go public through an initial
public offering, in a blog post called the regulator "elitist"
and said it was seeking to "reinstate the financial barriers
that Robinhood was founded to break down."
Galvin announced the case against Menlo Park, California-based
Robinhood in December, before the social media-driven rally in
stocks like GameStop, driven by retail investors using Robinhood
and other apps, drove up their shares' prices.
Galvin, the state's top securities regulator, accused Robinhood
of using aggressive tactics to attract inexperienced investors
and failing to prevent outages on its platform.
He alleged the app-based service used strategies that treated
trading like a game to lure young, inexperienced customers,
including by having confetti rain down for each trade made on
its app.
The case is the first enforcement action brought under a state
fiduciary rule that took effect in September that raised the
investment-advice standard for brokers.
Robinhood in its lawsuit argued that Galvin lacked authority to
override a long-standing conclusion by Massachusetts' top court
that brokerage firms like itself are not considered fiduciaries
of their customers.
It said the state's legislature has done nothing to change the
court's determination and that he lacked authority to adopt his
rule.
Robinhood said the rule also creates an obstacle for federal
regulation, saying the U.S. Securities and Exchange Commission
in 2019 adopted its own rule governing brokerage firms that
explicitly rejected the standard Galvin was enforcing.
Galvin, viewed nationally as an aggressive state securities
regulator, in a statement called the lawsuit "another example of
Robinhood's complete rejection of responsibility to their
customers."
(Reporting by Nate Raymond in Boston; Editing by Chris Reese,
Nick Macfie and Dan Grebler)
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