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Regulation and Compliance > State Regulation

Scottrade Files to Send Galvin’s Fiduciary Charges to Federal Court

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Scottrade has filed to remove to federal court the recent charge levied by the Massachusetts Securities Division claiming the broker-dealer violated the Labor Department’s fiduciary rule.

In a March 16 filing, Scottrade states that the securities division is attempting, through its administrative action, to enforce the requirements of the rule despite the fact that Labor has suspended enforcement until July 2019.

Scottrade also argues that the Employee Retirement Income Security Act “completely preempts such state enforcement actions.”

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

Galvin charged the broker-dealer with “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated Labor’s impartial conduct standards.

A spokesperson for Galvin’s office told ThinkAdvisor on Friday that his office is “challenging the removal and [is] seeking to have it remanded to the state.”

The Feb. 15 Massachusetts complaint states that prior to Labor’s impartial conduct standards becoming effective, “Scottrade employed a firmwide culture characterized by aggressive sales practices and incentive-based programs.”

The attorneys for Scottrade argue in their March 16 filing that although Galvin’s complaint against the firm “purports to allege violations of Section 204 of the Massachusetts Securities Act …, it is clear on its face that the gravamen of these state law claims is that Scottrade allegedly failed to comply with the fiduciary rule and failed to make good-faith efforts to implement the rule.”

The filing further argues that ERISA “preempts state law claims that duplicate, supplement or supplant ERISA’s civil enforcement mechanism, such as those alleged” in Galvin’s complaint.

“ERISA’s comprehensive legislative scheme includes an integrated system of procedures for enforcement” that “is a distinctive feature of ERISA, and essential to accomplish Congress’ purpose of creating a comprehensive statute for the regulation of employee benefit plans,” the filing states.

“As a result, ‘any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore preempted.’”

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