The Massachusetts Secretary of the Commonwealth's office filed a complaint against Robinhood in December 2020 alleging the platform was in violation of the state’s fiduciary duty standards.
Lawyers representing cryptocurrency and stock trading app Robinhood faced off against those for the Office of the Secretary of the Commonwealth of Massachusetts over the legality of a state regulation that could affect how the company markets itself to potential investors.
Under Secretary of the Commonwealth of Massachusetts William Galvin, the office's securities division filed a complaint against Robinhood in December 2020 alleging the platform illegally targeted inexperienced investors, claiming the practice was in violation of the state’s fiduciary duty standards. Galvin reportedly said at the time that Robinhood was marketing itself as “some sort of game that you might be able to win” and aimed to revoke the platform’s broker-dealer license in Massachusetts.
Robinhood has argued that the Massachusetts securities regulator exceeded its authority in attempting to enforce the fiduciary duty rules. In March 2022, a judge largely dismissed the regulator's position, leaving the matter on hold pending appeal, with oral arguments scheduled for May.
According to a Reuters report, Robinhood’s legal team returned to court on May 3, claiming Massachusetts law did not give Galvin “the power to make conduct that is ethical under existing federal and state law unethical simply by announcing it to be so.” Lawyers for the state office reportedly reiterated the regulator’s claims that the fiduciary duty aimed to protect investors from techniques Robinhood had allegedly used.
The case followed a tragic story from June 2020 in which a 20-year-old Robinhood investor committed suicide after seeing a $730,000 negative balance in his account — reportedly a temporary condition that could have resolved itself in time. The platform has also sometimes been the target of crypto users on social media following outages during peak trading periods, resulting in more than one class-action lawsuit.
Related: Robinhood launches fiat-to-crypto on-ramp for self-custody wallets and DApps
In April, Robinhood settled with securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas, agreeing to pay more than $10 million in penalties “for operational and technical failures that harmed main street investors.” The Financial Industry Regulatory Authority, a private organization in the United States that regulates member brokerages and exchanges, also fined the firm roughly $70 million in 2021 for causing “widespread and significant harm” to thousands of users.
Stealing from the rich, giving to...regulators? Robinhood ($HOOD) fined $10M settlement for system outages.https://t.co/FWL0VjYKD1
— Cointelegraph (@Cointelegraph) April 6, 2023
As of December 2022, Robinhood reported it had roughly 500,000 users registered in Massachusetts, with accounts totaling more than $1.6 billion. Cointelegraph reached out to the Massachusetts regulator's office, but a spokesperson did not comment on the secretary's position.
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