ReutersApr 16, 2021 4:15:52 AM IST
By Nate Raymond
BOSTON (Reuters) – Massachusetts regulators requested the revocation of Robinhood’s broker-dealer license Thursday after encouraging inexperienced investors to place risky trades with no limits, while the online broker sued to enforce a new rule, which the case is based on, to be declared invalid.
Massachusetts Secretary of State Bill Galvin requested revocation in a revised administrative procedure announced shortly after Robinhood’s lawsuit in Boston state court to challenge a standard of fiduciary behavior adopted by his office last year.
Robinhood, which is trying to go public through an IPO, has attempted to “restore the financial barriers Robinhood was founded to remove” in a blog post that the regulator describes as “elitist”.
Galvin announced the case against Robinhood in Menlo Park, Calif., In December before the social media rally in stocks like GameStop, which was boosted by retail investors using Robinhood and other apps, drove up share prices.
Galvin, the state’s top securities regulator, accused Robinhood of using aggressive tactics to attract inexperienced investors and fail to prevent failures on its platform.
He claimed the app-based service used strategies that treated the trade like a game to attract young, inexperienced customers, including by raining confetti for each trade on its app.
The case is the first enforcement action brought under a government escrow rule that went into effect in September that raised the standard for investment advice to brokers.
Robinhood argued in his lawsuit that Galvin had no authority to override a long-standing conclusion by the Massachusetts Supreme Court that brokerage firms like her are not considered trustees of their clients.
It was said that the state legislature had done nothing to change the court’s resolve and that it lacked the power to rule over it.
Robinhood said the rule also poses an obstacle to federal regulation. The US Securities and Exchange Commission passed a separate rule for brokerage firms in 2019, expressly rejecting the standard enforced by Galvin.
Galvin, nationally viewed as an aggressive state securities regulator, described the lawsuit in a statement as “yet another example of Robinhood’s utter denial of responsibility to its clients”.
(Reporting by Nate Raymond in Boston; Editing by Chris Reese, Nick Macfie and Dan Grebler)
This story was not edited by Firstpost staff and is generated by automatic feed.
