Eh, I think you immediately run into one of the lawyer-earmarks of a scam in that case.
A lawyer can't really tell you what will happen in a novel situation. They can speak with great confidence about legal precedents and where the law is black and white, but once you start walking into the grey areas, where the law isn't clear and there is no precedent, the law isn't a computer program interpreted by machines. There's a whole layer of human judgement in deciding what happens in that case, you don't just overflow onto the stack and get to rewrite the legal code to suit your needs.
So when a lawyer says something like, "Ahh, but the law only talks about 'checking accounts' and 'savings accounts' not 'checking & savings accounts'", at best they are giving you a preview of the argument they will make to a judge or jury at your trial.
Then future lawyers will be able to refer back to the precedents set in your court case with more confidence.
I think this is an insightful point. Lawyers are largely trained in reading and applying precedent. That said, one would think a responsible company would have received best and worst case guidance from a team of attorneys who could have easily expected this as a possible and perhaps probable outcome.
In other words, "this hasn't been tested in court" doesn't excuse them from apparently not bothering to get an opinion from the regulators who have the potential to greatly embarrass them after a high-profile product launch.
Yes, this is precisely my confusion. I would have expected a good lawyer (of the sort a major fintech startup should employ) to say something more like:
"This language doesn't directly violate the rules, and hasn't seen a court case. But it looks like an unsubtle attempt to bypass those rules and a big announcement using this approach is at minimum likely to draw some unfriendly scrutiny."
The law isn't a computer, and regulators - especially in financial spaces - have substantially more freedom than courts to simply reject loopholes. Things like structuring rules are essentially "laws against circumventing the law" for exactly this reason. I'm pretty surprised that Robinhood either didn't get a warning about how poorly this could go, or chose to ignore it.
> Regulators have strictly less power than courts here when applying existing... regulation
I guess it's a matter of terminology, but I think there are at least some cases where this isn't true. Ex post facto legislation is permitted in civil law, but it's not something courts can generate in response to a case.
Regulators operating under administrative law can create ex post facto rules wholesale if granted express permission by Congress, which is of course new regulation. But even without that grant, they can create limited retroactive rulings when new interpretations are offered during adjudication. [1] We can debate whether that's 'new regulation' or 'new interpretations of old regulation', but the net result is that regulators are empowered to cover unforeseen circumstances in ways that direct lawsuits are unlikely to offer.
(I am not a lawyer, but...) a move like this looks like an invitation for a Chenery II action, if one is was even needed. The SIPC didn't want to issue brokerage-account protections for a "Checking & Savings Account", and whatever the SEC said to Robinhood produced a very swift change of tune. I suspect it was something like "if we go into adjudication and say magic ampersands don't change your issuing rights, every court in the country will back us up".
A financial lawyer should fully understand the consequences of misleading consumer financial products, especially post-2008. First, you aren't allowed to do that anyway. Second, consumer finance is one area where cleverness is virtually not allowed.
> So when a lawyer says something like, "Ahh, but the law only talks about 'checking accounts' and 'savings accounts' not 'checking & savings accounts'"
I'm not a lawyer, but that line of reasoning sounds like something out of a comedy skit.
"Sure, the law regulates sales of alcohol and sales of firearms, but it doesn't say anything about an Alcohol And Firearms Combo Pack™!"
But there are many types of lawyers in this world. Besides the obvious professional divisions -- real estate vs patent law, trial law vs contract law, etc etc -- you have lawyers who advise their clients versus lawyers who assist their clients. The former are the kind you want, who will tell you what to do to keep everything above board; the latter view it as their job to help you do whatever it is you wanted to do, with the thinnest veneer of "obeying" the "law".
It "works" insomuch as you don't come under scrutiny and your lawyer's legal theories are never tested at trial; a lot of the people making use of this sort of lawyer will rarely if ever actually go to trial -- they'll drag things out until their opponents eventually settle.
I'm a banking & securities regulation attorney and I don't know one single attorney who would've given this the green light. Not one. Not even the attorneys I know who have a reputation for their "liberal" interpretation of regulations would have okayed this without at least notifying SIPC of their plans.
I thought a strength of the lawyer is also in knowing the quirks of the judicial system, such as knowing the quirks of a judge, or even the quirks of human irrationality, as opposed to being a merely excellent interpreter of legal text.
Just you don't know which judge you will end up with before you got sued... Might be tricky to know all the quirks of all the judges and then also predict which ones will be relevant, no?
A lawyer can't really tell you what will happen in a novel situation. They can speak with great confidence about legal precedents and where the law is black and white, but once you start walking into the grey areas, where the law isn't clear and there is no precedent, the law isn't a computer program interpreted by machines. There's a whole layer of human judgement in deciding what happens in that case, you don't just overflow onto the stack and get to rewrite the legal code to suit your needs.
So when a lawyer says something like, "Ahh, but the law only talks about 'checking accounts' and 'savings accounts' not 'checking & savings accounts'", at best they are giving you a preview of the argument they will make to a judge or jury at your trial.
Then future lawyers will be able to refer back to the precedents set in your court case with more confidence.