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Regulators seek to revoke Robinhood’s Massachusetts license

Secretary of state’s office expands its complaint against the popular online stock-trading platform

Robinhood has disputed state regulators' characterization of how it conducts business.Bloomberg/Photographer: Bloomberg/Bloomber

A legal fight between Massachusetts regulators and the popular consumer investing platform Robinhood escalated Thursday as Secretary of State William Galvin’s office said it would seek to revoke the company’s securities license here, and the firm sued to weaken his authority to do so.

The state Securities Division, which is part of Galvin’s agency, in December filed an administrative complaint accusing Robinhood of presenting the buying and selling of stocks as a game that would appeal to inexperienced investors. The Silicon Valley company has disputed that characterization.

On Thursday, the regulators asked a hearing officer to allow them to add to their case — bringing new allegations and requesting additional penalties, including the revocation of Robinhood’s registration as a broker-dealer in Massachusetts.


Galvin’s office said Robinhood “has continued a pattern of aggressively inducing and enticing trading among its customers — including Massachusetts customers with little or no investment experience.”

Among the practices cited is Robinhood’s offering of bonuses to people who deposit their federal stimulus checks into an online investing account.

The case against Robinhood brought by the Securities Division is the first action under new state rules that hold brokers to a fiduciary standard.

Separately Thursday, Robinhood filed a suit against Galvin in Suffolk Superior Court seeking to block the state effort. The company argued in a statement that the fiduciary rule “exceeds its authority under both Massachusetts state law and federal law.”

The company said Galvin’s office has not taken into account how a new generation of investors wants to access the stock market.

“We love Massachusetts and our Massachusetts customers and we fully intend to continue serving them for the long term,” the company’s statement said. “Robinhood has helped bring millions more people into our financial system, and the Massachusetts Securities Division’s attempt to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for.”


According to the complaint from Galvin’s office, Robinhood in December had nearly 500,000 accounts in Massachusetts, with a value of about $1.6 billion.

The company is the best-known one offering new online investing tools that have fueled an increase in activity by individual investors, including some who were a part of the massive runup in the stock of the retailer GameStop early this year.

The company has faced scrutiny over how it restricted trading in that stock and others during the height of the frenzy, and it has been targeted by regulators over issues including the stability of its platform and how it makes money.

Users sign up with the online brokerage for free and trade stocks and other investments without commission fees. The eight-year-old firm then sells those trades to another company, earning a small amount of money on each transaction.

Robinhood and Galvin’s office differ on the nature of the company’s platform. State regulators argue Robinhood is making recommendations about which stocks to buy when it presents lists of popular equities. The company says it does not offer investment advice and is simply showing users what is happening on the platform.

The legal action could be part of a long and complicated process. A decision by the hearing officer in the case brought by Galvin could be appealed in state court. But Robinhood’s separate suit seeks to block the earlier matter from proceeding.


Andy Rosen can be reached at