Robinhood, the commission-free brokerage, has suffered a major defeat in its case against the Massachusetts Secretary of State, Bill Galvin. The Supreme Judicial Court of Massachusetts (SJC) ruled Today (Friday) that a state fiduciary duty rule which is central to the case is valid, according to Reuters.

Massachusetts Supreme Court Backs Regulator

In December 2020, Galvin initiated an enforcement action against Robinhood, claiming that the online brokerage failed to protect its customers and their money. The Secretary alleged that Robinhood treated trading as a game and implemented strategies to lure young and inexperienced traders. For instance, the online broker allegedly rained down confetti on the phone screens of its traders after the execution of each trade.

Furthermore, Galvin argued that the alleged failure violated the state’s fiduciary duty rule which raised investment-advice standards for brokers in early 2020. He, therefore, sought to revoke the online trading platform's broker-dealer license.

However, in March last year, a trial court, the Suffolk County Superior Court in Boston, ruled in favour of Robinhood. The court argued that federal laws took precedence over the state regulator's stipulations. Additionally, Judge Michael Ricciuti determined that Galvin had overstepped his jurisdiction by implementing a regulation that was at odds with federal legislation.

Earlier in May, Finance Magnates had reported that Galvin and Robinhood would argue the validity of the state regulator's fiduciary duty rule at the highest court in Massachusetts. This came after Galvin appealed against the ruling at the SJC.

Meme Stock Frenzy: Robinhood Prevails in Court

Meanwhile, Robinhood recently secured victory in another case filed by a group of former traders. Earlier this month, an appellate court in the United States threw out certain claims made against the online broker for imposing trading restrictions during the meme stock frenzy that occurred three years ago.

In 2021, some dissatisfied traders took legal action against Robinhood, alleging market manipulation after the broker restricted trading of several meme stocks. The price of the stocks, which include those of Gamestop, AMC Entertainment and Blackberry, had been pumped through coordinated activities by a large group of amateur traders on the subreddit channel, WallStreetBets.

The action by the inexperienced traders caused big losses for hedge funds that had bet the price of the stocks would slump. At the time, the stock mania led Robinhood to secure over $1 billion in urgent additional funding. On top of that, the upheaval compelled other brokerage firms, such as TD Ameritrade, IG Group, and Charles Schwab, to halt trading on the skyrocketing stocks and associated derivatives.