Scalia: Massachusetts’ Move Makes Case to Vacate Fiduciary Rule

By Nevin Adams • February 20, 2018 • 0 Comments
Last week the Massachusetts Securities Division filed charges against Scottrade for knowingly violating its internal policies regarding implementation of the DOL fiduciary rule — an action that plaintiffs seeking to overturn that rule say validates their concerns.

Those concerns — outlined in a letter to the Clerk of the Court for the U.S. Court of Appeals for the Fifth Circuit, referenced the Massachusetts complaint filed last week. Specifically, Commonwealth Secretary William Galvin, the Bay State’s top securities regulator, not only charged Scottrade with “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated the Labor Department’s impartial conduct standards, but took aim at the Labor Department, which Galvin said “will not enforce its own laws and rules.”

In response, the letter, signed by Eugene Scalia, counsel for Chamber of Commerce appellants in litigation challenging the fiduciary rule, says “Although the claims are pleaded under state law, they are premised on Scottrade’s alleged violation of the U.S. Department of Labor’s Fiduciary Rule and related company policies, this enforcement action – which seeks censure, fines, and disgorgement, among other penalties vividly illustrates the urgent need to vacate the Rule.”

This particular group of plaintiffs —– combined into a single group from what had initially been three separate pieces of litigation — includes the U.S. Chamber of Commerce, the Financial Services Institute and the Securities Industry and Financial Markets Association (SIFMA).

The Massachusetts complaint asserts that “Scottrade has failed to act in good faith to comply with the Fiduciary Rule,” and argues that this gives rise to multiple violations of state law. “As Appellants warned,” the letter continues, “a fiduciary breach is alleged to have occurred through mere sales activity.”

The letter goes on to point out that the Massachusetts’ complaint “…confirms Appellants’ concern that the portions of the Rule that took effect on June 9, 2017 will continue to impose extensive burdens and costs on Appellants’ members, even while other aspects of the Rule have been postponed.”

Moreover, Scalia said that the Massachusetts’ action “…also shows that the Fiduciary Rule is exacerbating the risk of litigation, even absent ‘Best Interest Contracts,’ and that “with such litigation being pursued by state officials, private plaintiffs can also be expected to exploit the Rule to concoct state-law claims.” Indeed, Scalia goes on to claim that the fiduciary rule “is now spawning claims that will be enforced “under the splintered laws of fifty States.”

“A decision by this Court will put a halt to that, while also providing important guidance to the Labor Department in any future rulemaking proceedings.”

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