Robinhood will pay a fine of $7.5 million to resolve allegations by Massachusetts' securities regulators, Reuters reported today (Thursday). This settlement involves claims by the authorities that Robinhood encouraged inexperienced investors to undertake risky trades through its user engagement.

Massachusetts' Secretary of State, Bill Galvin, filed an administrative enforcement action in 2020, asserting that Robinhood was engaged in "gamification" tactics to stimulate user participation on its platform.

Empowering Investor Protection

According to a report by Bloomberg Law, the Supreme Judicial Court of Massachusetts rejected Robinhood's bid to block the implementation of the state's Fiduciary Duty Rule. Announced last year, this ruling places significant fiduciary responsibilities on broker-dealers, aligning them closely with the standards applied to investment advisers.

The court's decision upheld Galvin's authority to enforce the Fiduciary Duty Rule, elevating broker-dealers' fiduciary standards to match those of investment advisers. This ruling asserted that the Fiduciary Duty Rule is crucial for protecting investors as outlined in the Massachusetts Uniform Security Act.

Robinhood's Legal Challenge

Robinhood's legal challenge involves allegations of violating this rule by encouraging risky trading practices. The decision by the court addressed the growing complexity between broker-dealers and investment advisors. The court's ruling defined the obligations of financial professionals to act in the best interests of investors.

Galvin's enforcement action alleged that Robinhood failed to safeguard its users and their funds. The Secretary asserted that the brokerage firm employed tactics akin to gamification, targeting young and inexperienced traders.

Galvin contended that such practices breached the state's fiduciary duty rule, which was implemented in early 2020 to elevate the standards of investment advice provided by brokers. This ruling reinstates the validity of the state Fiduciary Duty Rule, emphasizing its importance in regulating broker conduct.

Despite a lower court ruling in Robinhood's favor in March 2022, the Suffolk County Superior Court in Boston, the Supreme Judicial Court, overturned it. The trial court had argued that federal laws superseded state regulations, and Judge Michael Ricciuti claimed Galvin overstepped jurisdiction.