Judge Leaves Fate of Mass. Fiduciary Rule Unclear in Robinhood Case

A Massachusetts judge on Thursday denied Robinhood’s attempt to prevent the state’s securities division from proceeding in an administrative case against the brokerage firm. However, the fate of Massachusetts’ fiduciary rule is unclear.

Robinhood filed a lawsuit in mid-April to overturn Massachusetts’ fiduciary rule and prevent the state’s securities division from proceeding in its administrative case.

Secretary of state William Galvin, Massachusetts’ top securities regulator, said Thursday in a statement that he’s “pleased with this victory” and “glad that Robinhood’s attempt to block the charges brought by the Securities Division was unsuccessful.”

A spokesperson for Galvin’s office told ThinkAdvisor on Thursday, however, that based on the ruling issued by Justice Kenneth W. Salinger of the Suffolk Superior Court ”it is unclear at this time” how the judge will rule on Massachusetts’ fiduciary rule. Salinger ”has asked for additional briefing on the matter and has not yet ruled on whether to stay action on the case until after” the securities division resolves its case against Robinhood.

Robinhood said Thursday in a statement that “We are pleased that the court will address the validity of the MSD’s fiduciary rule. We stand behind our customers, and we look forward to continuing to democratize finance for all in Massachusetts and across the country.”

Galvin accused Robinhood in mid-December of violating state law by using overly “aggressive tactics to attract new, often inexperienced, investors” and “gamification to encourage and entice continuous and repetitive use” of its mobile application.

In his decision Thursday, Salinger ordered Robinhood and the Massachusetts Securities Division to submit additional memoranda to the court by June 10 “on whether this case should be stayed or, alternatively, whether the Court should set a schedule providing for prompt resolution of Robinhood’s legal challenge to the Secretary’s fiduciary duty rule.”

A scheduling conference will be held June 14.

Salinger said that “There appears to be no basis for enjoining prosecution of the two claims that are not based on the new fiduciary duty regulation. It would not be in the public interest to do so. And Robinhood will suffer no irreparable harm if the Division proceeds with the pending administrative action.”

In a mid-April blog post, Robinhood said that the Massachusetts Securities Division “said it would seek to revoke Robinhood’s license in Massachusetts, which would prevent millions of Bay Staters from accessing our service.

“We love Massachusetts and our Massachusetts customers and we fully intend to continue serving them for the long term.”