A California judge has ruled that Robinhood, a popular mobile app that lets customers trade stock without paying commission or other fees, can face a class-action lawsuit alleging that it deceived customers by falsely claiming it would protect them from losses should the company go out of business. The judge’s decision essentially allows Robinhood to be sued for class-action status, according to The Wall Street Journal.
Robinhood’s customer-protection lawsuit is making its way to a federal courtroom. The U.S. District Court in Oregon ruled on Thursday that the company can move forward with its claims that its low-cost brokerage isn’t subject to the protections afforded to customers of more traditional brokerage firms.
A federal judge has ruled that Robinhood customer-protection litigation against the trading app company can proceed. The case was filed when Robinhood customers were unable to get their money back when their accounts were hacked.. Read more about why robinhood is bad and let us know what you think.A Massachusetts judge on Thursday gave a green light to state securities regulators to bring an action against Robinhood Financial LLC. He ruled that blocking administrative hearings on allegations that the online broker failed to protect inexperienced investors was not in the public interest.
Robinhood, a commission-free trading platform that has exploded in popularity this year, asked the court for a preliminary injunction last month to avoid an administrative lawsuit by the Massachusetts Securities Division. In its petition, Robinhood argued that the state’s new fiduciary rule, which state regulators accused Robinhood of violating, should be struck down.
In his decision, a Suffolk County Superior Court judge.
Kenneth W. Salinger.
has not ruled on the validity of the state’s fiduciary rule requiring brokers to act in the best interests of their clients. Instead, he suggested that Robinhood could continue to challenge the rule in court.
William Galvin, Secretary of the Commonwealth of Massachusetts
Photo:
Matt Stone/Boston Herald/Getty Images
Robinhood argues that the fiduciary rule does not apply to the firm, in part because it is a self-directed broker-dealer that does not provide investment advice or services. The brokerage firm also argues that the rule conflicts with other regulations and rulings and that the state’s chief securities regulator, the Secretary of the Commonwealth, cannot be held responsible for enforcing the rule.
William Galvin,
cannot redefine the common law of broker-dealers. The fiduciary rule was supported by Mr. Galvin and took effect last year.
In his decision, Judge Salinger asked both parties to provide additional information on whether Robinhood’s challenge to the fiduciary rule should continue or be stayed pending the outcome of the state regulators’ administrative appeal.
In December, Galvin’s office filed a complaint against Robinhood, alleging that the company aggressively marketed to inexperienced investors and failed to institute controls to protect them. In April, his office also filed a motion to revoke the company’s registration as a broker-dealer in the state to prevent Robinhood from doing business there. Mr. Galvin’s allegations were filed as an administrative complaint, not a legal action, meaning the case will be heard by a hearing officer.
In resolving the securities regulators’ administrative claim, Judge Salinger found that the securities regulators’ complaint against Robinhood contained allegations of violations unrelated to the fiduciary rule and that it was not in the public interest to preclude further claims.
Debra O’Malley,
a spokeswoman for Mr. Galvin, said in an email that he was pleased with the victory.
Robinhood spokeswoman Jacqueline Ortiz Ramsay said in a statement that the company is pleased that the court is reviewing the state’s fiduciary rule.
We support our clients and look forward to continuing to democratize financing for everyone in Massachusetts and across the country, she said.
The online brokerage has previously denied the regulators’ accusations, saying it has opened the door to investing for millions. Robinhood had about 20 million users by the end of 2020, the magazine previously reported.
The decision on Massachusetts’ fiduciary rule could have a major impact on the brokerage industry. In a memo filed this month, the Securities Industry and Financial Markets Association, a trade group, argued that passage of the bill could limit the ability of broker-dealers to operate predictably in the state, adding that firms would likely provide less information to investors on their platforms for fear that providing that information would expose them to a fiduciary rule.
The hype surrounding GameStop has drawn attention to a growing group of investors who seek out and share company information on social media platforms like YouTube and TikTok. Three investors explain how these online communities are helping them capture the market. Illustration photo: Adam Falk/The Wall Street Journal
Email Caitlin McCabe at [email protected].
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Published in the May 28, 2021 print edition under the headline Judge allows Massachusetts case on Robinhood.
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