Galvin Appeals Robinhood Ruling That Struck Down State’s Fiduciary Rule

Secretary of State William Galvin, Massachusetts’ top securities regulator, is appealing a Superior Court judge’s decision issued last March that struck down the state’s fiduciary rule.

Robinhood filed a lawsuit in April 2021 to overturn Massachusetts’ fiduciary rule, arguing that Galvin exceeded his authority in promulgating the state’s fiduciary rule. Judge Michael Ricciuti agreed in a ruling issued a year ago.

Galvin filed an appeal to the Supreme Judicial Court, Massachusetts’ highest court, on Feb. 9 asking that the court reverse Ricciuti’s decision and “vindicate the Secretary’s power to protect retail investors.”

A spokesperson for Galvin’s office told ThinkAdvisor Friday that “oral arguments in the case before the [Supreme Judicial Court] are scheduled for May 3.”

The administrative case against Robinhood “is on hold pending the [Supreme Judicial Court] case,” the spokesperson said.

That case involved Galvin accusing Robinhood in December 2020 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.

The public interest group Better Markets filed an amicus curiae, or friend of the court brief, Friday, in support of Galvin’s appeal.

“Too many retail customers are ripped off by their brokers who put their financial interests above the best interests of their clients. That’s wrong,” Stephen Hall, legal director and securities specialist at Better Markets, said Friday in a statement. “When advising or investing their clients’ money, brokers should be required always to put their clients’ best interests first.

“That’s why we are supporting the Massachusetts Secretary of the Commonwealth who issued a regulation to force stockbrokers to be prudent and loyal when recommending investments to retail investors — a standard that aligns with what true investment advisers have been expected to do for decades,” Hall explained.

He added: “This case is yet another legal action related to Robinhood’s long-running efforts to avoid accountability to its retail clients. Rather than embracing the high standard in the Massachusetts rule and focusing on ways to help its clients build long-term wealth, Robinhood sued the Secretary to block the rule under a variety of legal theories.”

Better Markets’ brief also refutes one of ”Robinhood’s core legal theories — that the SEC’s 2019 Regulation Best Interest supersedes or ‘preempts’ the Massachusetts regulation.”

This argument, Hall said, “cannot stand under current Supreme Court jurisprudence; the state’s rule here does not conflict with the SEC’s rule but simply adds an additional layer of protection for investors. And that’s a good thing, since the SEC’s Regulation Best Interest is a weak remedy for adviser conflicts of interest, one that has not lived up to the letter or spirit of Dodd-Frank or the federal securities laws.”

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