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Scottrade Pushes Back Against Massachusetts’s Top Securities Cop in Fiduciary Case

January 24, 2019

The battle between Massachusetts’ top securities cop and Scottrade over the company’s alleged violation of the fiduciary rule rages on, with Scottrade calling for a new hearing officer for the case, according to news reports.

In February last year, Secretary of the Commonwealth William Galvin charged Scottrade with violating its own policies as well the Department of Labor’s fiduciary rule.

The rule, which purported to require retirement account advisors to put clients’ interests ahead of their own, was vacated in an appeals court last March. Scottrade has claimed that Galvin was therefore overstepping his authority by trying to enforce a rule that the federal government would not. After much back and forth, Galvin got his way and the case was remanded to a state administrative proceeding.

The scheduling order for the state administrative hearing has since been set for later this year — but Scottrade lawyers asked last month for an independent officer to hear the case, according to ThinkAdvisor.

Currently, attorney Laurie Flynn is scheduled to act as the presiding officer, the publication writes. But Flynn was appointed by the director of the Massachusetts Securities Division, who in turn was appointed by Galvin, according to the publication.

During a Dec. 28 pre-hearing conference, Scottrade lawyer Christian Bartholomew told Flynn that Galvin had “prejudged” the case against the company, the publication writes.

Flynn hasn’t yet rendered a decision on Scottrade’s request, ThinkAdvisor writes. In March, attorneys must submit responses to motions for decision on the pleadings, according to the publication.

Separately, Galvin charged Royal Alliance Associates earlier this week with failing to supervise one of its agents, ThinkAdvisor writes.

Stephen Davis of Barrington, R.I., allegedly made unsuitable investment recommendations when he told two inexperienced investors to buy annuities three years before their expiration, according to the administrative complaint filed by the Massachusetts Securities Division, the publication writes.

The recommendation allegedly cost the investors close to $60,000 in lost interest and penalties, while Davis received more than $17,000 in commissions, Galvin’s office said, according to ThinkAdvisor.

The regulator, which also charged Davis with breach of fiduciary duty, is seeking an administrative fine, disgorgement of allegedly ill-gotten gains, restitution, sanctions and censure, the publication writes.

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