A lawsuit between Massachusetts regulators and popular consumer investment platform Robinhood escalated Thursday as Secretary of State William Galvin’s office said the company’s security license would be revoked here, and the firm said: sued to weaken his authority to do so.
The state division of securities, which is part of Galvin’s agency, filed an administrative complaint in December accusing Robinhood of offering to buy and sell shares as a game that would appeal to inexperienced investors. The company in Silicon Valley disputed the characterization.
The regulators on Thursday asked a trial officer to allow them to add their case. They brought new allegations and demanded additional fines, including the revocation of Robinhood’s registration as a realtor in Massachusetts.
Galvin’s office said Robinhood has continued a pattern of aggressively attracting and attracting trade among its customers – including Massachusetts customers with little or no investment experience.
Among the mentioned practices is the offering of Robinhood bonuses to people who deposit their federal stimulus checks into an online investment account.
The case against Robinhood by the Securities Division is the first action under new state rules that keep brokers on a standard of trust.
Separately Thursday, Robinhood filed a lawsuit against Galvin at Suffolk Superior Court to stop the state effort. The company argued in a statement that the rule of trust “exceeds its authority under both Massachusetts and federal law.”
The company said Galvin’s office did not consider how a new generation of investors would want access to the stock market.
“We love Massachusetts and our Massachusetts customers, and we plan to continue to serve them in the long term,” the company said in a statement. “Robinhood has helped bring millions more people into our financial system, and the Massachusetts Securities Division’s effort to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for.”
According to a complaint from Galvin’s office, Robinhood had nearly 500,000 accounts in Massachusetts in December, valued at about $ 1.6 billion.
The company is the best-known one offering new online investment tools that have fueled an increase in activity by individual investors, including some who were part of the large stock of retailer GameStop earlier this year.
The company investigated how it restricted trading in that stock and others during the frenzy, and regulators hit it off on issues including the stability of its platform and how it made money.
Users sign up for free with online brokers and trade stocks and other investments without commission fees. The eight-year-old firm then sells the trades to another company and earns a small amount of money per transaction.
Robinhood and Galvin’s office differ on the nature of the company’s platform. State regulators argue Robinhood makes recommendations on what stocks to buy if they offer lists of popular stocks. The company says it does not provide investment advice and merely shows users what is happening on the platform.
The legal steps can be part of a long and complicated process. A decision by the trial officer in the case brought by Galvin can be appealed to the state court. But the separate case of Robinhood seeks to prevent the earlier case from continuing.
Andy Rosen can be reached at [email protected]. Follow him on Twitter @andyrosen.