Close Close

Retirement Planning > Social Security

Lawyer Fighting DOL Rule Blasts Scottrade Fiduciary Charges

Your article was successfully shared with the contacts you provided.

Eugene Scalia, a partner with Gibson Dunn who represents the nine plaintiffs suing the Labor Department over its fiduciary rule, told the U.S. Court of Appeals for the 5th Circuit on Friday that Massachusetts’ action Thursday against Scottrade for allegedly violating the fiduciary rule’s Impartial Conduct Standards is “without merit,” and will spark “private plaintiffs …to exploit the rule to concoct state law claims.”

“Although the claims are pleaded under state law, they are premised on Scottrade’s alleged violation of the U.S. Department of Labor’s fiduciary rule and related company policies,” Scalia wrote.

The charge, levied by Massachusetts Securities Regulator William Galvin, “which seeks censure, fines, and disgorgement, among other penalties — vividly illustrates the urgent need to vacate the rule,” Scalia told the court.

Massachusetts’s “attempt to use the fiduciary rule in this manner lacks merit,” Scalia said, and “it confirms Appellants’ concern that the portions of the rule that took effect on June 9, 2017 will continue to impose extensive burdens and costs on Appellants’ members, even while other aspects of the Rule have been postponed.”

Among the nine plaintiffs that Scalia represents are the Securities Industry and Financial Markets Association, the Financial Services Institute and the U.S. Chamber of Commerce.

Scalia said that the Massachusetts’ complaint asserts that “Scottrade has failed to act in good faith to comply with the fiduciary rule,’” and argues that “this gives rise to multiple violations of state law.”

“As Appellants warned …, a fiduciary breach is alleged to have occurred through mere sales activity.”

The Masschusetts action, Scalia argued, “also shows that the fiduciary rule is exacerbating the risk of litigation, even absent ‘Best Interest Contracts.’ With such litigation being pursued by state officials, private plaintiffs can also be expected to exploit the rule to concoct state law claims.”

The Massachusetts Securities Division charged Scottrade on Thursday with violating the impartial conduct standards laid out in Labor’s fiduciary rule, which took effect on June 9, 2017.

Commonwealth Secretary William Galvin, the state’s top securities regulator, charged the broker-dealer with “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated Labor’s impartial conduct standards.   

Despite Scottrade adopting a rule to adhere to the impartial conduct standards that prohibited sales quotas, appraisals, bonuses, contests and other incentives for retirement or prospective retirement account clients, the broker-dealer “held at least two sales contests which included retirement assets” after June 9, the complaint states.

— Related on ThinkAdvisor:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.