Robinhood was sued Monday for the wrongful death by the family of Alex Kearns, a 20-year-old customer who took his own life last year after believing he had suffered huge losses with the millennial stock trading program.
“This case focuses on Robinhood’s aggressive tactics and strategy to lure inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of teasing profits,” reads the complaint filed by his parents, Dan and Dorothy Kearns, and his sister Sydney Kearns, filed. A California state court in Santa Clara. The family is based in Naperville, Illinois.
Robinhood’s ‘reckless conduct caused the death of one of his victims directly and near’, the complaint reads. The case also accuses the brokerage of negligent infliction of emotional distress and unfair business practices.
Alex Kearns, then a second student at the University of Nebraska at Lincoln, committed suicide in June after thinking he had a negative cash balance of $ 730,165 on Robinhood.
The complaint alleges that Kearns misunderstood Robinhood’s financial statement and that he protected his family from the financial obligation.
According to the case, Kearns made three attempts to contact Robinhood’s customer service regarding the massive underwater balance.
According to the complaint, however, there are automatic responses to his messages.
In a comment to his family that CNBC saw, Kearns accused Robinhood of allowing him to pose too many risks. He claimed that the purchases he had bought and that the shares sold, according to the note, “had to be canceled”.
Puts are options that give the owner the right to sell a security at a certain price.
According to the note, the dealer said he had ‘no idea’ what he was doing.
“How could a 20-year-old with no income get nearly a million dollars in leverage?” read the note Kearns wrote to his family. “There was no intention to invest so much and risk so much, and I just thought I was risking the money I actually owned.”
A Robinhood spokesman told CNBC: “We were devastated by Alex Kearns’ death. Since June we have improved our range of offerings.”
Robinhood has become a popular entry point into the stock market for first time investors. It has grown from 1 million users in 2016 to more than 13 million last year. Amid the GameStop drama fueled by investors by Reddit, traffic analysis website SimilarWeb estimates that another three million users downloaded Robinhood in January alone.
Robinhood, led by CEO Vlad Tenev, has been scrutinized for his ‘gamification’ of investments and alleged predatory marketing practices.
Robinhood is also facing customer litigation following the app’s decision to restrict the trading of certain securities during the recent GameStop controversy. The brokerage firm, which plans to launch in 2021, has repeatedly said that the majority of its users are long-term investors.
Robinhood, one of the biggest beneficiaries of the 2020 retail boom, has also explored the access it offers to clients without proper investment training. Last year, regulators in Massachusetts filed a lawsuit against Robinhood, accusing the trading app of robbery marketing to inexperienced investors.
The Securities and Exchange Commission accused the brokerage in December of misleading customers about how the stock trading app made money and did not deliver the promised best execution of transactions.
The Kearns family complaint says, “Robinhood not only allowed Alex to open the account, but when Alex was a first-year student later that year, it allowed him to trade options.”
“Worse, Robinhood provided almost no investment guidelines, and customer service was virtually non-existent, consisting of automated email responses without any human contact or interaction,” the family claims.
Here is Robinhood’s full statement regarding the lawsuit.
“We were devastated by the death of Alex Kearns. Since June, we’ve been improving our offering range. This includes adding the ability to execute contracts in the app, guidance to help customers through early allocation, updates on how our purchasing power displays more educational materials on options and new financial criteria and revised experience requirements for new clients who want to trade at level 3. In early December, we also added live voice support for clients with an open option position or recent expiration, and plan to extending to other use cases.We have also changed our protocol to escalate customers who email us for help with practice and early allocation.We remain committed to making Robinhood a place to learn and invest responsibly. “
– with coverage by Dan Mangan and Kate Rooney from CNBC.
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