Massachusetts securities regulators are seeking to revoke Robinhood’s broker-dealer license in the state, escalating the standoff between the online brokerage and critics who accuse the app of encouraging inexperienced investors to make risky trades.
The Massachusetts Securities Division said in an administrative complaint Thursday the company should have its license revoked because it allegedly fails to protect vulnerable users and “poses a substantial and continued risk to Massachusetts investors.”
The complaint builds off a case filed in December—before the Reddit-fueled GameStop mania—accusing the company of gamifying the platform and ultimately steering customers to lists of stocks that aren’t in their best interest, which allegedly violates a recently-passed state law raising the standards of conduct for broker-dealers.
Regulators specifically point to recent updates from Robinhood they say warrant increased action, including the fact that Robinhood is offering “free cash” in exchange for depositing stimulus payments and expanding margin trading to customers.
In response, Robinhood decried the action as “elitist and against everything we stand for,” and filed its own lawsuit in state court seeking to invalidate the fiduciary rule by arguing the rule “exceeds its authority under both Massachusetts state law and federal law.”
Robinhood sad the company fully intends to continue serving Massachusetts customers “for the long term.”
“The complaint reflects the old way of thinking: That new, younger, and more diverse investors don’t have a place in the markets. By trying to block Robinhood, the division is attempting to bring its residents back in time and reinstate the financial barriers that Robinhood was founded to break down,” the company said in a statement.
One of the specific complaints made by regulators is that Robinhood’s digital confetti graphic contributes to the gamification of investing inside the app. Last month, Robinhood decided to remove the feature entirely after backlash.
This is a developing story.