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Robinhood (HOOD) Suffers Defeat in Massachusetts Court Ruling
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Robinhood Markets, Inc. (HOOD - Free Report) has been defeated in its case against the Massachusetts Secretary of State, Bill Galvin. On Friday, the Massachusetts Supreme Judiciary Court ruled that a state fiduciary duty rule, which says that broker-dealers have a fiduciary obligation to provide investment advice without regard to the interests of anyone but their customers, is valid.
With its ruling, the Massachusetts court has provided victory to state securities regulators in their enforcement action against Robinhood.
In December 2020, the Secretary of State initiated an enforcement action against Robinhood, claiming that the online brokerage firm failed to protect its customers and their money.
Galvin alleged that Robinhood treated trading as a game and implemented strategies to entice young and inexperienced traders to engage in risky trading through its online platform, thus violating the state’s fiduciary duty rule.
Since then, Galvin sought to have Robinhood’s state broker-dealer license revoked.
However, in March 2022, a trial court provided a decision in favor of Robinhood, saying that federal laws took precedence over the state regulator’s stipulations.
Additionally, the judge who heard the case felt that Galvin overstepped his jurisdiction by implementing a regulation that was at odds with federal legislation.
However, the Massachusetts’ top court’s Friday ruling has reversed the lower-court judge’s decision, thus providing victory to Galvin.
Robinhood’s deputy general counsel and head of government affairs, Lucas Moskowitz, informed, “We are disappointed in today’s decision and remain committed to providing access to the markets for our Massachusetts customers.”
After his victory, Galvin stated, “The rule that has been upheld by the Supreme Judicial Court today will give the highest protections to Massachusetts investors when brokers provide investment advice.”
Over the past six months, shares of HOOD have gained 8.3% against the industry’s decline of 12.2%.
Nomura Holdings, Inc. (NMR - Free Report) agreed to pay $35 million as part of a non-prosecution agreement with the federal government over criminal fraud relating to the trading of residential mortgage-backed securities (MBS).
Traders at Nomura had been accused of overstating prices of MBS, which was demanded by sellers from 2009 to 2013, and keeping the difference. Further, the traders were held responsible for charging extra unearned commissions from their customers by negotiating prices for bonds that NMR had already purchased.
The resolution will have no material financial impact, as the entire settlement has been provisioned in prior periods.
CURO Group Holdings Corp.’s subsidiary, Heights Finance Holding Co., has been sued by the U.S. Consumer Financial Protection Bureau ("CFPB") for allegedly pushing low-income borrowers to refinance short-term loans. The practice placed nearly 10,000 borrowers in continuous debt between 2013 and 2020.
The lawsuit, filed in federal court in Greenville, SC, stated that Heights Finance violated laws against unfair and abusive lending practices by churning loans through repeated refinancing.
Per CFPB, Heights Finance took advantage of struggling borrowers by not offering them alternatives to refinancing, which carried a fee each time.
However, CURO has denied the allegations and will likely defend its business practices in a vigorous manner.
In a statement, CURO mentioned that the small loans in consideration were originated by subsidiaries of Heights Finance before it was acquired by the company in late 2021 from private equity firm Milestone Partners.
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Robinhood (HOOD) Suffers Defeat in Massachusetts Court Ruling
Robinhood Markets, Inc. (HOOD - Free Report) has been defeated in its case against the Massachusetts Secretary of State, Bill Galvin. On Friday, the Massachusetts Supreme Judiciary Court ruled that a state fiduciary duty rule, which says that broker-dealers have a fiduciary obligation to provide investment advice without regard to the interests of anyone but their customers, is valid.
With its ruling, the Massachusetts court has provided victory to state securities regulators in their enforcement action against Robinhood.
In December 2020, the Secretary of State initiated an enforcement action against Robinhood, claiming that the online brokerage firm failed to protect its customers and their money.
Galvin alleged that Robinhood treated trading as a game and implemented strategies to entice young and inexperienced traders to engage in risky trading through its online platform, thus violating the state’s fiduciary duty rule.
Since then, Galvin sought to have Robinhood’s state broker-dealer license revoked.
However, in March 2022, a trial court provided a decision in favor of Robinhood, saying that federal laws took precedence over the state regulator’s stipulations.
Additionally, the judge who heard the case felt that Galvin overstepped his jurisdiction by implementing a regulation that was at odds with federal legislation.
However, the Massachusetts’ top court’s Friday ruling has reversed the lower-court judge’s decision, thus providing victory to Galvin.
Robinhood’s deputy general counsel and head of government affairs, Lucas Moskowitz, informed, “We are disappointed in today’s decision and remain committed to providing access to the markets for our Massachusetts customers.”
After his victory, Galvin stated, “The rule that has been upheld by the Supreme Judicial Court today will give the highest protections to Massachusetts investors when brokers provide investment advice.”
Over the past six months, shares of HOOD have gained 8.3% against the industry’s decline of 12.2%.
Image Source: Zacks Investment Research
Currently, HOOD carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Legal Hassles Faced by Other Finance Firms
Nomura Holdings, Inc. (NMR - Free Report) agreed to pay $35 million as part of a non-prosecution agreement with the federal government over criminal fraud relating to the trading of residential mortgage-backed securities (MBS).
Traders at Nomura had been accused of overstating prices of MBS, which was demanded by sellers from 2009 to 2013, and keeping the difference. Further, the traders were held responsible for charging extra unearned commissions from their customers by negotiating prices for bonds that NMR had already purchased.
The resolution will have no material financial impact, as the entire settlement has been provisioned in prior periods.
CURO Group Holdings Corp.’s subsidiary, Heights Finance Holding Co., has been sued by the U.S. Consumer Financial Protection Bureau ("CFPB") for allegedly pushing low-income borrowers to refinance short-term loans. The practice placed nearly 10,000 borrowers in continuous debt between 2013 and 2020.
The lawsuit, filed in federal court in Greenville, SC, stated that Heights Finance violated laws against unfair and abusive lending practices by churning loans through repeated refinancing.
Per CFPB, Heights Finance took advantage of struggling borrowers by not offering them alternatives to refinancing, which carried a fee each time.
However, CURO has denied the allegations and will likely defend its business practices in a vigorous manner.
In a statement, CURO mentioned that the small loans in consideration were originated by subsidiaries of Heights Finance before it was acquired by the company in late 2021 from private equity firm Milestone Partners.