New York, California and Six Attorneys General Sue SEC to Challenge Rule Blessing Broker-Dealers who Give Financial Advice Not in the Best Interest of Their Consumer Clients

Tuesday, September 10, 2019
Contact: (916) 210-6000,

SACRAMENTO – Today, California Attorney General Xavier Becerra joined New York in a coalition of eight attorneys general filing a lawsuit to challenge the Security and Exchange Commission’s (SEC) new rule allowing broker-dealers to continue providing conflicted advice to investors.  The rule in question — the so-called Best Interest Rule — would allow broker-dealers to continue promoting investments that better compensate them at the expense of the best financial interest of their customers.  Last year, the Trump Administration jettisoned the Obama-era Department of Labor’s Fiduciary Rule, which would have protected investors from broker-dealer abuses and conflicts of interest and saved consumers tens of billions of dollars annually. The SEC’s new rule falsely claims to protect investors but in fact leaves them vulnerable to financial advisors who put profits ahead of their clients. 

“How quickly the SEC forgets that, just a decade ago, millions of Americans had their savings wiped out because of Wall Street's greed. It seems the SEC is willing to repeat history,” said Attorney General Becerra. “Despite its name, the Best Interest Rule is not in the best interest of consumer-investors, like retirees with IRA and 401(k) accounts. This rule provides cover for Wall Street to continue business as usual. We’re suing to stop the SEC from holding its thumb on the scale in favor of Wall Street brokers over hardworking Americans.”

The SEC’s rule purports to raise the standard of care required of broker-dealers who advise clients about investments such as for retirement. However, the SEC’s rule does not properly define “best interest” and permits brokers to recommend to their clients higher cost investments which happen to offer financial incentives to brokers for referrals. The lawsuit, filed in the U.S. District Court for the Southern District of New York and in the Second Circuit Court of Appeals in New York, alleges the rule provides inadequate investor protection and is contrary to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The coalition contends that Section 913 of the Dodd-Frank Act only authorizes the SEC to engage in rulemaking to strengthen protections for customer-investors and does not authorize the SEC to create a weakened standard. The coalition further alleges that the SEC ignored the will of Congress and violated the Act by failing to mandate that broker-dealers act in the best interest of their customers. 

Joining California and New York in filing the lawsuit are the attorneys general of Connecticut, Delaware, Maine, New Mexico, Oregon, and the District of Columbia.

This lawsuit continues Attorney General Becerra’s work to protect consumers and their retirement savings. In August 2018, when the Trump Administration first proposed the Best Interest Rule, Attorney General Becerra and a coalition of 17 attorneys general argued the rule falls short by failing to impose a uniform fiduciary standard, relying too much on disclosure instead of preventing conflicts of interest, and leaving key terms ambiguous and undefined. Almost a year later, the SEC voted to approve the new rule, which Attorney General Becerra immediately denounced. Additionally, in April 2018, Attorney General Becerra, along with the attorneys general of New York and Oregon, filed a motion to intervene in Chamber of Commerce of the USA, et al. v. U.S. Department of Labor, et al. in order to defend the Fiduciary Rule which requires retirement investment advisors to put the interests of their clients above their own financial gain.

A copy of the lawsuit is available here.

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