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Regulation and Compliance > Federal Regulation

Galvin Fighting for Fiduciary Duty That ‘Only He Believes Exists’: Scottrade Attorneys

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Lawyers representing Scottrade told the U.S. District Court for the District of Massachusetts on Friday that the recent charge levied against the broker-dealer for violating the Labor Department’s fiduciary rule should be heard in federal court because Massachusetts Securities Regulator William Galvin is “overstepping his bounds by seeking to impose on Scottrade a federal duty that only he believes exists.”

Galvin, the attorneys argued in their 65-page filing, brought the action against Scottrade “to enforce the fiduciary rule because the federal government would not,” stating that his action “is part of his campaign to enforce his own, personal interpretation of this now-abolished federal rule, attempting unilaterally to substitute his judgment for that of Congress, federal regulators and the federal courts.”

Attorneys representing the Enforcement Section of the Massachusetts Securities Division, which claimed Scottrade violated the fiduciary rule, said in an April 13 filing that Scottrade’s attempts fail to satisfy terms of the removal statute in two separate respects.

First, the attorneys said, action by a state agency to enforce the Massachusetts Securities Act is not one “of which the district courts of the United States would have original jurisdiction … as even Scottrade itself does not contend that the Enforcement Section could have filed its action in this court.”

Moreover, the securities division’s action against Scottrade “was also not initially ‘brought in a State court,’ … but instead was filed within a state administrative agency,” the April 13 filing stated.

The Massachusetts Securities Division, headed by 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.

The Scottrade attorneys told the court in their May 11 filing that because the underlying dispute “involves a federal question — enforcement of a federal rule promulgated under a federal statute — Scottrade removed this action from the ‘state court’ proceeding as it was entitled to do under both the removal statute and applicable precedent from this Circuit.”

Galvin, the attorneys argue, “repeatedly exalts form over substance, and claims that this action against Scottrade is only about state law issues under [Massachusetts Uniform Securities Act] MUSA, despite the plain allegations … and plaintiff’s repeated statements that he is seeking to enforce the federal fiduciary rule.”

The Scottrade attorneys conclude that “because the court has jurisdiction to address Galvin’s attempt to enforce a federal rule issued under a federal statute with broad pre-emptive effect, Scottrade’s removal of this action was proper and, accordingly, the Motion to Remand should be denied.”

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