In win for Robinhood, judge declares Massachusetts investment advice rule invalid

BOSTON, March 30 (Reuters) — A Massachusetts judge on Wednesday dealt state securities regulators a major setback in their enforcement action against online brokerage Robinhood (HOOD.O) by declaring the state’s new fiduciary duty rule that underlies parts of the case invalid.

Suffolk County Superior Court Judge Michael Ricciuti in Boston ruled in a lawsuit Robinhood filed after Massachusetts Secretary of State Bill Galvin in December 2020 accused it of encouraging inexperienced investors to place risky trades.

The decision impacts only part of Galvin’s administrative enforcement action, and he may still pursue claims that Robinhood’s conduct was unethical or dishonest and that it failed to adequately supervise employees.

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Galvin, the state’s top securities regulator, alleged Robinhood used strategies that treated trading like a game to lure young, inexperienced customers, including by having confetti rain down on the user’s screen for each trade made on its app.

He argued that Robinhood violated a fiduciary duty rule he adopted in early 2020 that raised the investment-advice standard for brokers and that its broker-dealer license in the state should be revoked.

The Massachusetts rule went beyond a standard the U.S. Securities and Exchange Commission adopted in 2019 by requiring broker-dealers have a fiduciary obligation to provide investment without regard to the interests of anyone but their customers.

But Ricciuti wrote the rule improperly overrode Massachusetts state law governing stockbrokers’ duties and that Galvin went beyond his authority by adopting a regulation that conflicted with federal law.

He put his decision on hold to allow Galvin, a Democrat, time to appeal. Debra O’Malley, a spokesperson for Galvin, said his office is reviewing the decision and weighing its options.

An administrative trial is scheduled for Sept. 26.

Dan Gallagher, Robinhood’s chief legal office, in a statement welcomed the ruling, saying Galvin has «consistently mischaracterized and disparaged Robinhood’s platform and customers without any legal basis.»

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Reporting by Nate Raymond in Boston; Editing by Sam Holmes and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

Nate Raymond reports on the federal judiciary and litigation. He can be reached at

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