NEW YORK -- Seven states and the District of Columbia have sued the Securities and Exchange Commission, saying the regulatory agency is putting investors in jeopardy by relaxing rules designed to ensure that securities brokers keep the interests of their customers ahead of their own.
The lawsuit filed Monday in Manhattan federal court asked a judge to order the agency to scrap a new rule that weakens protections for consumers because it violates the intent of Congress and was approved in an arbitrary and unlawful manner.
A message seeking a response was left Tuesday with the SEC.
The states said they are harmed because bad investment advice leaves consumers with less money to spend, and that therefore they collect less in taxes.
New York Attorney General Letitia James said the SEC was failing to protect investors, favoring "Wall Street over Main Street."
She noted that new rules let broker-dealers consider their own interests when recommending investments.
"This watered-down rule puts brokers first," she said, making it likely that investors will be confused.
James said the SEC was failing to adopt the investor-protections passed by Congress in 2010 when it used the Dodd-Frank financial overhaul law to tighten regulatory loopholes revealed by the 2008 financial crisis.
"The SEC is now promulgating a rule that fails to address the confusion felt by consumers and fails to remedy the conflicting advice that motivated Congress to act in the first place," she said in a release.
Other state plaintiffs include California, Connecticut, Delaware, Maine, New Mexico and Oregon.