Nate Raymond

BOSTON (Reuters). A Massachusetts judge declared the new fiduciary rule of the state that is the basis for parts of the enforcement case against Robinhood (NASDAQ) invalid.

Suffolk County Superior Court Judge Michael Ricciuti in Boston ruled https://tmsnrt.rs/3JXkqV5 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.

Galvin will not be affected by the decision. He may continue to pursue allegations that Robinhood was dishonest or unethical and that it did not adequately supervise its employees.

Galvin was the head of the state’s securities regulator. He claimed Robinhood made trading seem like a game in order to attract young and inexperienced customers. For example, it would have confetti pour down onto the screen after each trade that is done on its app.

Robinhood’s violation of a fiduciary obligation rule, which he adopted early 2020 and raised the investment advice standard for brokers, led him to argue that Robinhood’s broker-dealer licence in the state must be revoked.

By requiring that broker-dealers be bound by fiduciary obligations to invest in the best interests of their clients, the Massachusetts rule goes beyond the standard adopted by the U.S. Securities and Exchange Commission in 2019.

However, Ricciuti’s rule overrode Massachusetts law regarding stockbrokers and Galvin acted beyond his authority to adopt a regulation in conflict with federal law.

To give Galvin (a Democrat), time to appeal, he put the decision on hold. Galvin spokesperson Debra O’Malley said that his office was reviewing the decision, and is weighing all options.

On September 26, an administrative trial will be held.

Robinhood’s Chief Legal Office Dan Gallagher welcomed the decision and stated that Galvin had “consistently mischaracterized Robinhood and its customers without any legal basis.”