A Massachusetts judge has rejected Robinhood’s bid to block state regulators from going ahead with enforcing their legal action on allegations that it encourages inexperienced investors to place risky trades without limits.
In a ruling Suffolk County Superior Court Judge Kenneth Salinger said, “Robinhood could continue challenging in court the validity of the state’s new fiduciary rule, which underlies Massachusetts Secretary of State Bill Galvin’s case against it”.
Salinger also clarified that the ruling does not mean he should temporarily block Galvin, who oversees the state’s securities division, from proceeding with the case while noting that some claims were unrelated to the new regulation.
“If the court were to strike down the challenged regulation, the division would still be entitled to press its separate claims that Robinhood’s alleged conduct was nonetheless unethical or dishonest,” wrote Salinger.
He also requested further briefing on whether Robinhood’s challenge to the fiduciary rule should be put on hold pending the outcome of Galvin’s administrative case, albeit it would be “unusual” to do so, he said.
Galvin’s spokeswoman Debra O’Malley said he was pleased by the ruling. Jacqueline Ortiz Ramsay, Robinhood’s spokeswoman welcomed the judge’s decision to address the rule’s validity.
Galvin had announced his case against Robinhood in December 2020 before the social media-driven rally in GameStop Corp which prompted retail investors into buying stocks on platforms such as Robinhood.
In April 2021, Robinhood sued back arguing that Galvin lacked authority to adopt the fiduciary rule and that it conflicted with federal law.
In 2019, the U.S. Securities and Exchange Commission had adopted its own rule for brokerages that rejected the standard Galvin was enforcing.