Lawyers representing Massachusetts’ top securities regulator, William Galvin, told the U.S. District Court for the District of Massachusetts on Friday that Galvin’s case against Scottrade for violating the Labor Department’s fiduciary rule should not be heard in federal court because a securities firm’s “violation of its own policies has long been a basis for liability” under state law, regardless of the complaint’s fiduciary rule references.
In their nine-page reply brief, Galvin’s attorneys also argue that Scottrade attorneys ignore the fact that “this is a securities case, and that state securities laws are generally excluded from ERISA pre-emption.”
The Scottrade attorneys have maintained that the Employee Retirement Income Security Act “completely pre-empts such state enforcement actions” as Galvin has levied against the broker-dealer.
Galvin’s attorneys, however, told the court Friday that the main pre-emption provision in ERISA Title I states that “nothing in this Title shall be construed to exempt or relieve any person from any law of any state which regulates . . . securities.”
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The Massachusetts Securities Division, headed by Galvin, charged Scottrade with violating the impartial conduct standards laid out in Labor’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.