The Robinhood app will be displayed on a screen in this photo illustration on January 29, 2021. REUTERS / Brendan McDermid / Illustration
Regulators from Massachusetts on Thursday called for the revocation of the license for brokerage brokers from Robinhood to encourage inexperienced investors to place risky operations without limits, while the online brokerage sued to invalidate a new rule underlying the case.
Secretary of State Bill Galvin called for the recall in a revised administrative case announced shortly after Robinhood sued in Boston State Court over a trust standard his office accepted last year.
“We do not believe our clients are as naive as the Massachusetts Securities Division paints them,” Robinhood said in a statement.
Galvin announced the lawsuit against Menlo Park, California-based Robinhood, in December before action on social media in stocks like GameStop, driven by retail investors using Robinhood and other applications, raised the price of their shares.
Galvin, the state’s leading security regulator, accused Robinhood of using aggressive tactics to lure inexperienced investors and failing to prevent disruptions to its platform. read more
He claims that the app-based service uses strategies that have treated trading like a game to attract young, inexperienced customers, including raining down confetti for every trade made on his app.
The case is the first enforcement action under a state fiduciary rule that went into effect in September, raising the investment advisory standard for brokers.
Robinhood argued in his lawsuit that Galvin did not have the authority to rule a long-standing conclusion of the Massachusetts Supreme Court that brokerage firms like himself are not considered trustworthy by their clients.
It is said that the legislature of the state has done nothing to change the decision of the court and that it does not have the authority to assume its power.
Robinhood said the rule also creates an obstacle to federal regulation, saying the U.S. Securities and Exchange Commission in 2019 adopted its own rule regulating brokerage firms that explicitly reject the standard that Galvin applies.
Galvin, who is nationally regarded as an aggressive regulator of government securities, said in a statement the lawsuit was “another example of the rejection of Robinhood’s responsibility towards their customers.”
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