Scottrade’s Fiduciary Infractions Violate State Law: Galvin
DOL rule or no DOL rule, Scottrade violated its own policies and that's not OK under state law, Galvin's lawyers say.
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.”
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.
Galvin is now on a crusade to ensure that the case against Scottrade is heard in state court.
The “legal theory” underlying Galvin’s administrative complaint that Scottrade violated state laws “by not adhering to its own express standards of conduct for sales contests — clearly can be resolved without looking at federal law, since it requires only a comparison of Scottrade’s written policies with its actual behavior,” Galvin’s attorneys wrote in their brief.
Labor’s fiduciary rule is still in effect until the U.S. Court of Appeals for the 5th Circuit issues its mandate vacating the rule.
The American Council of Life Insurers and the National Association of Insurance and Financial Advisors pressed the 5th Circuit Court on June 6 to issue that mandate “expeditiously,” as the rule is causing compliance uncertainty.
Galvin’s 24-year career as Massachusetts secretary of state is being challenged by Boston City Councilor Josh Zakim, who says “he would bring a fresh perspective to the secretary of state’s office.”
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