The Massachusetts Supreme Judiciary Court (the state’s highest court) Friday reversed a lower court’s decision that had found in favor of digital brokerage Robinhood.
The decision is monumental, not only for the enforcement action against the behemoth online broker in 2020, but as a new precedent in Massachusetts, one that seemingly now holds all broker-dealers, online or not, to the same fiduciary standard of investment advisors.
Justice Dalila Wendlandt, who wrote the opinion for the court’s Friday 5-0 ruling, said that the court found Secretary of the Commonwealth William F. Galvin, had not overstepped his authority in holding Robinhood to a fiduciary duty in the enforcement action.
“Unlike the fabled ‘Prince of Thieves,’ who took from the rich to give to the poor, the plaintiff Robinhood Financial LLC (Robinhood), is accused by the Secretary of the Commonwealth (Secretary) of taking advantage of unsophisticated investors to fill its own coffers by dispensing ill-suited investment advice to these customers and by encouraging them to engage in risky trading practices using its online trading platform,” she wrote in the opening sentence of the opinion.
On page 23 of the 47-page opinion, Wendlandt discusses the “expansive authority” that the Secretary of the Commonwealth and its Securities Division has in protecting investors in the state under the Massachusetts Uniform Security Act and that authority extended “to protect investors confused by the increasingly blurred line between broker-dealers providing investment advice and investment advisers.”