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According to state authorities, Robinhood has threatened novice buyers.
The Securities and Exchange Commission of Massachusetts is attempting to suspend the broker-dealer licence of the cryptocurrency-friendly stock trading software Robinhood in the state.
According to Bloomberg, the director of the state’s securities division, William Galvin, said in a recent regulatory lawsuit that Robinhood has “continued a pattern of aggressively inducing and enticing trading among its customers — including Massachusetts customers with little or no investment experience.”
The latest lawsuit follows a complaint lodged by Galvin’s office in December 2020, charging that Robinhood’s ads inappropriately exploited novice investors.
The state cited Robinhood’s recent operation, such as a campaign that offers consumers cash prizes dependent on new deposits, as evidence of a “firm culture that has not changed.”
Robinhood referred to the latest lawsuit, claiming that the decision could deprive “millions of Bay Staters” of access to their website. The company announced in December that its network has almost 500,000 users in Massachusetts.
The company has filed a lawsuit in Massachusetts attempting to overturn a newly enacted fiduciary regulation that state authorities have accused it of breaking. The law, which goes into effect in 2020, allows brokers to work in the best interests of their customers.
“The Massachusetts Securities Division’s new Fiduciary Rule exceeds its authority under Massachusetts state law as well as federal law,” Robinhood added. “Robinhood is a’self-directed’ brokerage firm that does not make investment recommendations or offer investment advice. The new legislation, on its own words, would not extend to self-directed firms,” the firm stated in the lawsuit.
Since being embroiled in the contentious GameStop stop short-squeeze, Robinhood has come under increasing scrutiny from regulators and users alike. The trade group was outraged when Robinhood stopped buying GameStop stock in January 2021.
Alex Kearns, a 20-year-old Robinhood consumer, committed suicide last year after discovering a $730,000 negative balance on his Robinhood smartphone. A note on his computer allegedly asked, “How was a 20-year-old with no income able to get assigned nearly a million dollars worth of leverage?” Kearns’ parents filed a wrongful death case against Robinhood in February 2021.
Robinhood has also been plagued by a series of technical challenges, which have allegedly resulted in significant losses for traders and prompted more legal proceedings against the firm.
The most recent such occurrence occurred on Thursday, when Robinhood’s crypto trading site experienced technological difficulties when Dogecoin (DOGE) reached a new all-time high of $0.27.