BOSTON (Reuters) – Online brokerage Robinhood on Friday accused Massachusetts securities regulators of creating a “false impression” that it encourages inexperienced investors to place trades without limits and inappropriately approved customers for risky trading.
Robinhood’s lawyers filed a response to administrative charges filed against it in December. On Thursday, Robinhood came under criticism for restricting trading in some hot stocks including GameStop. It later eased those restrictions.
Massachusetts Secretary of the Commonwealth William Galvin, the state’s top securities regulator, accused Robinhood of using aggressive tactics to attract inexperienced investors and failing to prevent outages on its platform.
He accused the app-based service of using strategies that treated trading like a game to lure young, inexperienced customers, including having confetti rain down for each trade made on its app.
Robinhood’s lawyers said there was nothing illegal about features like digital confetti or approving customers to trade options without prior experience, and argued that all apps and brokerages are susceptible to occasional outages.
“Robinhood has helped open the door to investing to millions of people who have traditionally been shut out of the markets,” its lawyers wrote.
The company argued Galvin’s case also failed because he lacked authority to adopt a state fiduciary rule in September that raised the investment-advice standard for brokers, saying Galvin had improperly usurped the legislature’s power.
Galvin’s spokeswoman declined to comment. He is seeking a fine and an order requiring Robinhood to engage a compliance consultant to review its platform and policies.
The Menlo Park, California-based company has amassed 13 million user accounts since its founding in 2013, with its commission-free trading model gaining popularity among retail traders during the COVID-19 pandemic.
It agreed in December to pay $65 million to resolve U.S. Securities and Exchange Commission charges it misled customers about its revenue sources.
Retail investors using Robinhood and other apps drove the so-called “Reddit rally” that pushed up shares of GameStop and other companies championed on social media platforms including Reddit, resulting in heavy losses for big hedge funds that had shorted the shares.
GameStop surged 51% on Friday after brokers including Robinhood eased restrictions placed the previous day.
(Reporting by Nate Raymond in Boston; Editing by David Gregorio)