Trading app Robinhood said on Thursday that the Massachusetts Securities Division was considering revoking its license to operate in the state over its alleged failure to adequately protect customers and their assets.
In a post on its blog, Robinhood said the move was "elitist and against everything" the company stands for.
"The complaint reflects the old way of thinking: That new, younger, and more diverse investors don’t have a place in the markets," the post stated. "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. We will stand with our customers to enable them to have the investing experience they want."
Robinhood said it filed a complaint and motion for preliminary injunction to prevent the state from proceeding with its case. The company said millions of Massachusetts users stand to be affected.
Robinhood found itself in hot water earlier this year after a slew of everyday traders logged on to buy beaten down stocks like GameStop, AMC and Bed, Bath & Beyond. The resultant surge in stock prices caused sizable losses for some private equity firms that had shorted the stocks.
Lawmakers were angered that Robinhood was forced to halt trading during the middle of the frenzy to meet restrictions, leaving customers unable to benefit from market gains.
The move to potentially revoke Robinhood’s license is based on a state fiduciary rule that went into effect in September. In the court filings, Robinhood claims the fiduciary rule is invalid under Massachusetts state law and preempted by federal law.
A fiduciary standard requires institutions and advisers to prioritize the interests of the customer.
Robinhood, which has plans to go public, sought to make clear that it is a "self-directed" brokerage firm that does not provide investment recommendations or advice.
A spokesperson for the Massachusetts Securities Division did not return FOX Business’ request for comment.
Massachusetts’ top securities regulator William Galvin filed a complaint in December against Robinhood for violating the state's law.
Galvin said Robinhood "aggressively marketed itself to Massachusetts investors without regard for the best interests of its customers," who are often inexperienced and used "strategies such as gamification" to encourage use of its app. It continued to attract customers using these methods, Galvin said, despite awareness of shortcomings in its infrastructure that has led to outages and disruptions.
The complaint also claims that Robinhood’s lists of the most popular and most-traded securities are similar to lists handed to customers by broker-dealers.
Galvin said there were 486,600 Massachusetts accounts customers with a total value of more than $1.6 billion as of December.