Robinhood, the financial app that has been in the news over the past two weeks for its suppression of the WallStreetBets Reddit community’s efforts to bid on a variety of shorted stocks like GameStop and AMC, is now being sued by the family of a young man who died by suicide.
In 2020, 20-year-old Alex Kearns killed himself after mistakenly believing he had lost $730,000 on the financial trading app, where he started trading as a teenager.
In the lawsuit, which was filed on Monday, Kearns’ parents are suing Robinhood for wrongful death, negligent infliction of emotional distress and unfair business practices, CBS News reports.
According to Alex’s mother and father, Robinhood, whose stated mission is to stand up for the little guy and democratize finance, targeted young and inexperienced customers like Alex and pushed them to engage in risky trading practices. The lawsuit states that Robinhood provided “no meaningful customer support” when investors like Alex needed it on the day he died.
Speaking to CBS This Morning, Dan and Dorothy Kearns said that they had a full house after the pandemic brought their son Alex home early from college, and described it as a “joyful household.”
Dorothy said that Alex was interested in trading and had opened an account on the Robinhood app, which allows anyone to buy and sell stocks regardless of experience, before he had graduated high school.
Alex started with his own savings, accrued from birthday gifts and cash saved from his summer job as a lifeguard, his parents said. Dan and Dorothy said that they were aware of his stock trading activities.
“I didn’t see the harm in doing that,” said Alex’s father Dan, who described his son as having “limited exposure.” Dan said that he spoke to his son about responsible investing.
Neither parent realized that Robinhood had, at the time, approved Alex to engaged in riskier investments like buying and selling options. “I don’t understand how they allowed that to happen in the first place,” said Dan.
The Kearns said that on June 11, Alex’s inexperience appeared to get him into trouble following a transaction, when Robinhood restricted his account reflecting what appeared to be a negative balance of $730,000.
At 3:26 a.m., Robinhood sent the 20-year-old an automated email demanding he take “immediate action” and requested a payment of more than $170,000 in just a few days.
According to the Kearns family’s attorneys, Alex may not actually have lost any money at all, due to the way the options trades were structured.
Seeking help, Alex emailed Robinhood’s customer support address three times that night to understand what had happened, and whether it would be possible to offset the losses with another trade.
“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,” he wrote.
In response, the company sent him an automated message thanking him for reaching out and informed him that their response time to him could be delayed, but assigned him a case number.
Robinhood did not respond in time. Later that day, the sheriff visited the Kearns to inform them that their son was dead.
A day following Alex’s death, Robinhood sent another automated email stating that the trade was resolved and that he did not actually owe the company any money.
“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 feel free to reach out. We’re happy to help!”
According to William Galvin, Massachusetts Secretary of the Commonwealth and the state's chief regulator, Alex’s death is of particular worry to Galvin and his team. In the state of Massachusetts, authorities have found more than 600 examples of Robinhood users who by the app’s own standards should never have been approved to trade options, but had been.
“The rush to make money out of this has caused them to add people to their base. And to recklessly bring people on board who they probably should have said ‘No, we won’t qualify you for options right now,’” said Galvin.
A spokesperson for Robinhood told CBS News that the company disagrees with the complaint by the Massachusetts Security Division and intends to defend itself against the suit.