Mass. Regulator Seeks to Revoke Robinhood’s License, Robinhood Sues

The Massachusetts Securities Division is seeking to revoke Robinhood’s broker-dealer license to prevent it from doing business in the commonwealth after charging it for encouraging inexperienced investors to place unnecessarily risky trades, per a Thursday filing. Concurrently, Robinhood is suing to prevent the regulator from proceeding with its administrative complaint, arguing that the regulator’s new fiduciary rule exceeds its authority under state and federal law.

Previously, the Massachusetts regulator sued Robinhood in an administrative case in December 2020 for targeting novice investors and exposing them to “unnecessary trading risks” by allegedly violating state laws and regulations by failing to protect customers and safeguard its system. According to the Wall Street Journal, in an amended complaint, the regulator said that Robinhood has “continued a pattern of aggressively inducing and enticing trading among its customers.” Reportedly, the Massachusetts Securities Division pointed to recent company decisions, such as giving customer cash rewards based on new deposits, thus illustrating that the company has not changed since the original complaint.

Meanwhile, Robinhood filed a complaint and motion for preliminary injunction Thursday in the Massachusetts State Superior Court seeking a stay of the administrative action; to enjoin the enforcement of the new fiduciary rule; to declare that the fiduciary rule is contrary to law, invalid, unenforceable, and of no effect; and to declare that the Secretary of the Commonwealth cannot make broker-dealers fiduciaries of self-directed customer accounts. Robinhood is represented by Morgan, Lewis, & Bockius LLP.

In a blog post Thursday, Robinhood stated, “We love Massachusetts and our Massachusetts customers and we fully intend to continue serving them for the long term.” Robinhood added, “the Massachusetts Securities Division’s attempt to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for. We don’t believe our customers are naive as the Massachusetts Securities Division paints them to be. … The complaint reflects the old way of thinking: That new, younger, and more diverse investors don’t have a place in the markets. By trying to block Robinhood, the division is attempting to bring its residents back in time and reinstate the financial barriers that Robinhood was founded to break down.”

The legal battles with the Massachusetts Securities Division comprise only the latest trouble for Robinhood. The company first was sued by the Securities and Exchange Commission in December, and then famously in January for preventing retail investors from trading GameStop and other companies’ stock; in under two weeks, Robinhood faced 33 lawsuits over the incident. Then, in March 2020, Robinhood was sued for going down on a record-setting trading day. 

It also seems Robinhood was experiencing issues earlier today with cryptocurrency trading, per several tweets; however, it may now be fully restored. It is worth noting that this outage issue comes after Coinbase became the first digital currency-related entity to make its public debut.