Robinhood Facing Lawsuit after Inexperienced Investor Commits Suicide
Popular trading app Robinhood is under scrutiny yet again after the family of a 20-year-old who committed suicide last June filed a lawsuit against the trading platform.
Alexander Kearns was a college student who used money he had saved from his lifeguarding job to trade on the stock market by way of the free app, Robinhood. Kearns was one of the thousands of students who came back home during the pandemic and like many, Kearns found himself trading stocks on the platform that was targeted specifically towards millennials.
After logging into his Robinhood account last June, Kearns was met with a notification that showed he had a negative cash balance of $730,000. Kearns' account was placed on a restricted mode because of the negative cash balance. According to the lawsuit, Kearns reached out to the trading platform to figure out why he was in the red. Because the app's customer service has no direct phone number, he sent them an email that read in part, "I was incorrectly assigned more money than I should have, my bought puts should have covered the puts I sold. Could someone please look into this?"
Robinhood's automatically generated response emailed him back stating, "Thanks for reaching out to our support team! We wanted to let you know that we're working to get back to you as soon as possible, but that our response time to you may be delayed."
Kearns continued to email the platform throughout the evening he saw the negative cash balance but was unsuccessful in getting a response. Shortly after, Kearns' parents were alerted by the sheriff's department that their son had committed suicide by throwing himself in front of a train.
The day after his death, Robinhood emailed the 20-year-old, "Great news! We're reaching out to confirm that you've met your margin call and we've lifted your trade restrictions. If you have any questions about your margin call, please reach out. We're happy to help!"
It has not been determined exactly what prompted Kearns to commit suicide, but according to Kearns' cousin-in-law Bill Brewster, the inexperienced investor was distraught over his perceived investment loss. In a letter Kearns wrote before he committed suicide that was shared on Twitter by Brewster, Kearns writes, "How was a 20-year-old with no income able to get assigned almost a million dollars' worth of leverage? The puts I bought/sold should have canceled out, too, but I also have no clue what I was doing now in hindsight."
In the lawsuit, Kearns’ parents accused the millennial-focused trading app of targeting and misleading experienced investors like their son. The Kearns family also states that Robinhood encouraged its customers to engage in high-risk trading practices like buying and selling options. These were some of the trades Kearns had allegedly made on Robinhood. His parents explain that the reality of how customers interact with the app is far different from the app's mission, which is to make investing for everyday people more accessible.
According to the lawsuit, the Kearns family also alleges that Robinhood enticed investors without providing the full scope of ramifications associated with the stock market. The lawsuit reads in part, "Robinhood built out its trading platform to look much like a videogame to attract young users and minimize the appearance of real-world risk."
The overall appeal of the app does mimic the interface of a video game. Whenever investors purchase a new stock, they are met with a display of confetti celebrating the new acquisition. The main interface is also minimalistic with little information regarding research tools to help investors, many of whom are inexperienced in understanding the consequences of executing trades. The app does offer a premium membership option that provides more research tools; however, this is a service the app provides for an additional fee.
In addition to allegations of wrongful death, the family is accusing the app of inflicting emotional stress and participating in unfair business practices. The Kearns family highlights the fact that Robinhood did not provide a practical method of communication other than email. And in the communication that was made, Kearns was left waiting in a vulnerable and emotionally distressed state. The lawsuit reads, "He was in a complete panic. His panic and desperation grew as he was unable to communicate over a number of hours with anyone at Robinhood." The complaint goes on to say, "Tragically, Robinhood's communications were completely misleading because, in reality, Alex did not owe any money."
Soon after his death, Robinhood issued a statement in which they express their devastation over the college student's death. Robinhood added that it would make improvements to its app that would help guide investors through options offerings. Robinhood goes on to explain that they are committed to making the platform space for new investors to learn about how to invest properly.
Many critics agree with the Kearns family that Robinhood targeted inexperienced investors knowingly. The Secretary of the Commonwealth and chief financial regulator of Massachusetts, William Galvin, said of the trading app, "I think it demands some sort of national standard for this behavior. There was a very deliberate effort on the part of Robinhood to particularly entice younger, inexperienced investors."
This latest lawsuit against the app is one of dozens that have been filed against the platform in the past couple of months. The most recent pending lawsuits surround the controversy of Robinhood suspending trades of Reddit-driven stocks GameStop and AMC.
