Welcome to Financial Advisor IQ

Regulator Presses Scottrade Prosecution

June 13, 2018

William Galvin, Massachusetts' Secretary of the Commonwealth, continues his pursuit of Scottrade over allegations the firm has violated the Department of Labor’s almost-defunct fiduciary rule. Last Friday, lawyers for the state’s top securities cop filed a brief arguing the case shouldn’t be heard in federal court, ThinkAdvisor writes.

In February Galvin charged that sales practices at Scottrade violated the fiduciary rule, which purports to require retirement account advisors to put clients’ interests first, as well as the company's own policies banning quotas, contests and bonuses to encourage sales to retirement account clients. The DOL’s fiduciary rule went into only partial effect last summer, and in March an appeals court vacated the rule. Last month, Scottrade argued Galvin was overstepping his authority “to enforce the fiduciary rule because the federal government would not” and reiterated its argument, first made in March, for the case’s removal to federal court.

In the brief filed by Galvin’s attorneys last Friday, however, the securities watchdog argued that the case shouldn’t go to federal court because of a longstanding precedent that violations of a firm’s own policies have been a basis for liability under state law, according to ThinkAdvisor.

Galvin’s lawyers also say Scottrade’s lawyers are ignoring that the matter “is a securities case, and that state securities laws are generally excluded from ERISA preemption,” the publication writes, citing the nine-page brief.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.