Robinhood was sued Monday for unlawful death by the family of Alex Kearns, a 20-year-old customer who took his own life last summer after he believed he had amassed huge losses in the millennial-favored trading app .
“This case focuses on Robinhood’s aggressive tactics and strategy of attracting inexperienced and unprofessional investors, including Alex, to take big risks by attracting tempting profits,” said the complaint filed by his parents Dan and Dorothy Kearns, and by his sister Sydney Kearns in a California state court in Santa Clara. The family is based in Naperville, Illinois.
“Robinhood’s reckless conduct directly and imminently caused the death of one of his victims,” the complaint reads. The lawsuit also accuses the brokerage of negligently provoking emotional distress and unfair trading practices.
Alex Kearns, then a student at the University of Nebraska at Lincoln, committed suicide in June after believing he had a negative balance of $ 730,165 on Robinhood.
The complaint alleges that Kearns misunderstood Robinhood’s financial statement and protected his family from financial obligation.
The lawsuit says Kearns made three attempts to contact Robinhood customer service about the massive underwater balance.
However, according to the complaint, his messages received automatic replies.
In a note to his family that CNBC saw, Kearns accused Robinhood of allowing him to take too many risks. He claimed that he also bought the shares sold “should have been canceled”, according to the note.
Powers are options that give the owner the right to sell a security at a specified price.
The trader said he had “no clue” what he was doing, according to the note.
“How could a 20-year-old with no income receive leverage worth nearly $ 1 million?” read the note Kearns wrote to his family. “There was no intention to attribute so much to me and risk so much, and I just thought I was risking the risk of the money we actually have.”
A Robinhood spokesman told CNBC: “We were devastated by the death of Alex Kearns. Since June, we have made improvements to our range of options. ”
Robinhood has become a popular entry point into the stock market for first-time investors. It grew from 1 million users in 2016 to over 13 million last spring. Amid the GameStop drama fueled by Reddit investors, the traffic analysis site SimilarWeb estimates that another 3 million users downloaded Robinhood in January alone.
Robinhood, which is led by CEO Vlad Tenev, has come under scrutiny for its “gamification” of investment and alleged predatory marketing practices.
Robinhood is also facing collective action by customers following the app’s decision to restrict the trading of certain securities during the recent GameStop controversy. The brokerage firm, which plans to go public in 2021, has repeatedly said that most of its users are long-term investors.
Robinhood, one of the biggest beneficiaries of retail growth in 2020, has also been controlled for the access it provides to its customers without investing in proper education. Last year, Massachusetts regulators filed a lawsuit against Robinhood, accusing the application of predatory marketing trading on inexperienced investors.
The Securities and Exchange Commission accused the brokerage in December of misleading customers about how the stock trading application makes money and failed to deliver the best promised execution of transactions.
Kearns’ family’s complaint says, “Not only did Robinhood allow Alex to open an account, but when Alex was a freshman in college later that year, it allowed him to trade options.”
“Worse, Robinhood offered almost no investment guidance, and its ‘customer service’ was virtually non-existent, consisting of automated e-mail responses, devoid of any human contact or interaction,” the family claimed. In procces.
Here is Robinhood’s full statement on the trial.
“We are devastated by the death of Alex Kearns. Since June, we have made improvements to our range of options. These include adding the ability to exercise in-app contracts, guidance to help customers with early delivery, updates on how we display purchasing power, more educational materials on options, and new financial criteria and revised experience requirements for new customers. wanting to trade Level 3 options. In early December, we also added live voice support for clients with an open or recently expired options position and plan to expand to other use cases. We’ve also changed our protocol to expand the customers who email us for help with exercise and early distribution. We remain committed to making Robinhood a place of responsible learning and investment. “
– with reports from Dan Mangan and Kate Rooney from CNBC.
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