Robinhood has hit back at a Massachusetts regulator which filed an administrative complaint on Thursday to revoke the fintech’s broker-dealer licence.
In a blog post regarding the filing, Robinhood called the Massachusetts Securities Division – a state regulator designed to protect US investors – “elitist” and harbouring “an old way of thinking”.
The ongoing feud between Robinhood and the Commonwealth traces back to an initial filing made by the Massachusetts regulator in December.
It alleges that the $11.7 billion-valued digital broker “aggressively” marketed its products to investors without their “best interests”.
“An old way of thinking”
Robinhood is now suing the regulator to invalidate the filing, which is underpinned by fiduciary rule. That is, the legal requirement for financial advisors to work in their customers’ best interest.
The fintech’s complaint reads: “The new rule violates state and federal law. In addition, there is no legitimate basis to apply the rule to Robinhood.”
The filing poses the motion of a preliminary injunction.
In Robinhood’s latest blog post, the digital broker fires another blow at the state regulator. “The Massachusetts Securities Division’s attempt to prevent Massachusetts residents from choosing how they invest is elitist,” it says.
“We don’t believe our customers are naïve 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. […] We will not succumb to unfounded, politicised allegations and unreasonable demands from the Massachusetts Securities Division.”
A sea of legal and regulatory battles
The Massachusetts’ December filing against Robinhood also accuses it of failing to house the sufficient infrastructure and procedures to cope with its rapidly growing client base.
In March 2020, Robinhood experienced a series of three serious outages – one lasting an entire day, locking millions out the US market. The downtime, which Robinhood put down to unprecedented traffic on the platform, resulted in a class action lawsuit against the firm.
Then the Gamestop saga happened in January, which saw the fintech restrict certain trades. It caused customers to lose out on positions they couldn’t sell, or positions they wanted to buy but couldn’t. This episode prompted a further 49 lawsuits against the firm.
Alongside the litigation, Robinhood is being investigated by two US regulators: the Financial Industry Regulatory Authority (Finra) and the Securities and Exchange Commission (SEC).
They are looking at how the brokerage displays options trades and cash positions to its customers. Finra, the body which protects US investors, is also still looking into the March 2020 outages.
So far, the fintech has paid $65 million to the SEC over deal disclosures. The investigation found the start-up failed to fully disclose its tactic of selling orders to high-speed trading firms.
In a bid to placate regulators, the California-based stock trading app hired two executives from Finra in January.