Where a plaintiff filed a complaint challenging the validity of a state regulation that brings the fiduciary obligations of broker-dealers in line with those of investment advisors, a Superior Court judgment invalidating the regulation must be reversed because (1) the secretary of the commonwealth did not overstep the bounds of the authority granted to him under the Massachusetts Uniform Securities Act, (2) the fiduciary duty rule does not override the common-law protections available to investors, (3) the MUSA is not an impermissible delegation of legislative power, and (4) the rule is not preempted by the Securities and Exchange Commission’s (SEC) determination to impose a national “best interest” standard of care on broker-dealers, 17 C.F.R. 4 §240.15l-1 (2019).
“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. This conduct, the Secretary alleges, violated the prohibition of the Massachusetts Uniform Securities Act, G.L.c. 110A (MUSA), against ‘unethical or dishonest conduct or practices in the securities, commodities[,] or insurance business,’ G.L.c. 110A, §204(a)(2)(G) — a phrase that the Secretary has defined to require broker-dealers that provide investment advice to retail customers to comply with a statutorily defined fiduciary duty, see 950 Code Mass. Regs. §12.207(1)(a) (2020) (fiduciary duty rule or rule). Unlike prior standards of care, which differentiated between broker-dealers and investment advisers in view of their traditionally distinct investment services and offerings, the rule brings the fiduciary obligations of broker-dealers in line with those of investment advisers, making uniform the duties owed by those engaged in the business of providing investment advice regardless of label. The rule, according to the Secretary, was needed to protect investors confused by the increasingly blurred line between broker-dealers providing investment advice and investment advisers.
“This case concerns the question whether, by promulgating the fiduciary duty rule, the Secretary overstepped the bounds of the authority granted to him under MUSA. We conclude that he did not. We further conclude that the fiduciary duty rule does not override the common-law protections available to investors, that MUSA is not an impermissible delegation of legislative power, and that the rule is not preempted by the Securities and Exchange Commission’s (SEC) determination to impose a national ‘best interest’ standard of care on broker-dealers, 17 C.F.R. §240.15l-1 (2019) (Regulation Best Interest). We therefore reverse the judgment entered by a Superior Court judge on the pleadings in a civil action challenging the validity of the fiduciary duty rule, and we remand the matter for further proceedings.”
Robinhood Financial LLC v. Secretary of the Commonwealth, et al. (Lawyers Weekly No. 10-100-23) (47 pages) (Wendlandt, J.) The case was heard by Michael D. Ricciuti, J., on motions for judgment on the pleadings. Phoebe Fischer-Groban for the defendants; Amy Mason Saharia (John S. Williams, of the District of Columbia, Timothy P. Burke and Jason S. Pinney also present) for the plaintiff; the following submitted briefs for amici curiae: Ben Robbins & Daniel B. Winslow for New England Legal Foundation; Shay Dvoretzky, of the District of Columbia, Eben P. Colby and Marley Ann Brumme for Chamber of Commerce of the United States of America and another; Robert S. Banks Jr., of Oregon, and William A. Jacobson for Cornell Securities Law Clinic; Timothy Cornell and Patrick J. Dolan for Public Investors Advocate Bar Association; Elizabeth Aniskevich and Benjamin Davis, of the District of Columbia, Stuart Rossman and Shennan Kavanagh for AARP and others; Timothy Cornell and Patrick J. Dolan for Institute for the Fiduciary Standard and another; Dennis M. Kelleher for Better Markets, Inc.; James F. Radke and Dylan White for North American Securities Administrators Association, Inc. (Docket No. SJC-13381) (Aug. 25, 2023).
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a
