Young man, 20, commits suicide after seeing negative balance in investment app 1:33
(CNN Business) -
Robinhood was sued for the wrongful death of a 20-year-old college student who committed suicide last summer after seeing a negative $ 730,000 balance in his trading account and mistakenly believing that was the sum. of money owed.
Alexander Kearns' parents and sister accused Robinhood of luring inexperienced investors like their son to take large risks in sophisticated financial instruments, such as the options trading in which he participated, without providing the client support and guidance necessary to the investment.
"Robinhood built its
trading
platform in a
way that is very much like a video game to attract young users and minimize the appearance of risk in the real world," says the lawsuit filed Monday in California by Kearns parents Dan and Dorothy. , and his sister Sydney.
In addition to the wrongful death, the complaint filed by the Illinois family accuses Robinhood of causing emotional distress through negligence and unfair business practices.
The compensation they seek will be determined at a later date.
"Tragically, Robinhood's communications were completely misleading because Alex did not actually owe money," the lawsuit says.
Robinhood's response
The tragedy illustrated the potential dangers of the
free
trading
boom
triggered in large part by Robinhood, which has seen explosive growth during the pandemic.
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Those risks have recently been further magnified by the rise and fall of GameStop, catapulted by an army of operators on Reddit.
Robinhood sparked outrage last month by temporarily suspending purchases of GameStop, a controversial move that prompted Congress to schedule hearings.
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In a statement, Robinhood explained that it has made a number of enhancements to its option offering, including providing guidance to assist clients, updates on how it displays purchasing power, and live voice support for clients with open option positions. .
"We were devastated by the death of Alex Kearns," said Robinhood.
"We remain committed to making Robinhood a place to learn and invest responsibly," he added.
'I was in total panic'
Kearns, who began using Robinhood when he was a senior in high school, died by suicide in June after performing an option spreads operation that contained a risk "Alex did not understand," according to the lawsuit.
His Robinhood account reflected a negative cash balance in the amount of $ 730,000, far more money than he had, according to the lawsuit.
'I was in total panic.
His panic and despair grew because he was unable to communicate for several hours with anyone in Robinhood, ”the lawsuit says.
And he adds that he repeatedly tried to contact company representatives and was unsuccessful.
Robinhood, the app at the center of the GameStop craze 1:17
Added to this, Kearns did not realize that this huge negative balance would have been erased with the exercise and liquidation of the options it had, according to the lawsuit.
"Robinhood never bothered to explain this to Alex or respond to his increasingly desperate pleas for help," the lawsuit says.
The family directly blamed Robinhood for the Kearns panic.
"This resulted in a mental state of great distress for Alex, an uncontrollable urge to commit suicide as the only option he could see," they said.
Changes in Robinhood
Before taking his own life, Kearns left a note indicating his confusion.
"How could a 20-year-old with no income get him a leverage of almost $ 1 million?" The note read, according to the lawsuit.
The document adds that these are the last words written that are known to them.
After Kearns' death, Robinhood's co-founders wrote that they were "personally devastated by this tragedy" and promised to make improvements to its application.
Robinhood said this week that its changes include new financial criteria and a review of experience requirements for new clients looking to trade advanced options strategies, and that it plans to expand this to other use cases.
Robinhood also changed its system to speed up email support requests from some option traders.
Robin Hood