By Nate Raymond
BOSTON (Reuters) -A Massachusetts judge on Thursday rejected Robinhood’s bid to block state regulators from moving forward with their enforcement action alleging that the online brokerage encourages inexperienced investors to place risky trades without limits.
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.
But Salinger said that did not mean he should in the interim block Galvin, who oversees the state’s securities division, from proceeding with his case, 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,” Salinger wrote.
He 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, though he said it would be “unusual” to do so.
Debra O’Malley, Galvin’s spokeswoman, said he was pleased by the ruling, while Jacqueline Ortiz Ramsay, a spokeswoman for Menlo Park, California-based Robinhood, welcomed the judge’s decision to address the rule’s validity.
Galvin’s office had argued the issue should be first heard by the administrative hearing officer presiding over his case against Robinhood, which is seeking to go public through an initial public offering.
Galvin announced his case in December, before the social media-driven rally in stocks like GameStop Corp prompted by retail investors buying the stocks on platforms like Robinhood.
Robinhood sued in April, arguing Galvin lacked authority to adopt the fiduciary rule and that it conflicted with federal law. The U.S. Securities and Exchange Commission in 2019 adopted its own rule for brokerages that rejected the standard Galvin was enforcing.
(Reporting by Nate Raymond in BostonEditing by Jane Merriman, Matthew Lewis and Cynthia Osterman)
