Massachusetts Supreme Judiciary Court sided with the state Friday against day-trading app Robinhood on a rule that holds broker-dealers to fiduciary duties of care and loyalty.
The state’s top court reversed a decision handed down by a lower court, which last year took Robinhood’s side in a lawsuit against Massachusetts Secretary of Commonwealth William Galvin. In 2020, Galvin had filed an enforcement action against the firm accusing it of implementing “aggressive tactics to attract inexperienced investors [and the] use of gamification strategies to manipulate customers.”
The 2022 ruling invalidated the state’s rule that broker-dealers have a fiduciary duty to provide investment advice in the best interest of their customers, raising broker-dealer fiduciary standards to the level applied to investment advisers.
In the Supreme Judiciary Court’s 5-0 ruling upholding the state’s fiduciary rule, Justice Dalila Wendlandt wrote that Galvin had not overstepped the bounds of the authority granted to him under the Massachusetts Uniform Securities Act in holding the firm to a fiduciary duty in the 2020 enforcement action.
The court remanded the matter for further proceedings.
MUSA gives “expansive authority” to protect investors to the Secretary of the Commonwealth and its Securities Division, Wendlandt wrote, and that authority is extended "to protect investors confused by the increasingly blurred line between broker-dealers providing investment advice and investment advisers.”
Galvin told Reuters that the Supreme Judicial Court’s decision to uphold the rule “will give the highest protections to Massachusetts investors when brokers provide investment advice.”
Robinhood Deputy General Counsel Lucas Moskowitz expressed disappointment in the decision to Reuters, adding that the company “remain[s] committed to providing access to the markets for [its] Massachusetts customers.”