Robinhood was sued Monday for tort death by the family of Alex Kearns, a 20-year-old client who took his own life last summer after believing he had suffered big losses on the millennials beloved stock trading app.
“This case centers around Robinhood’s aggressive tactics and strategy to lure inexperienced and unaffected investors, including Alex, to take big risks with tantalizing profits,” said his parents Dan and Dorothy Kearns’ complaint, and his sister Sydney Kearns. a California court in Santa Clara. The family is based in Naperville, Illinois.
Robinhood’s “reckless behavior caused immediate and near death of one of his victims,” the complaint said. The lawsuit also accuses the brokerage of negligent inflicting emotional distress and unfair business practices.
Alex Kearns, a then-sophomore at the University of Nebraska in Lincoln, committed suicide in June after thinking he had a negative $ 730,165 balance on Robinhood.
The complaint alleges that Kearns misunderstood Robinhood’s financial statement and protected his family from the financial obligation.
According to the suit, Kearns has made three attempts to contact Robinhood customer service regarding the massive underwater balance.
However, according to the complaint, his messages were answered with automated replies.
In a message to his family that CNBC saw, Kearns accused Robinhood of putting him at too much risk. He claimed the wells he bought and the stock sold “should have expired,” the note said.
Puts are options that give the owner the right to sell a security at a specified price.
The trader said he had “no idea” what he was doing, the note said.
“How could a twenty-year-old with no income get leverage of nearly a million dollars?” read the note Kearns wrote to his family. “I didn’t mean to get that much and take that much risk, and I just thought I was risking the money I actually owned.”
A Robinhood spokesperson told CNBC, “We were devastated by the death of Alex Kearns. Since June, we’ve made improvements to our range of options.”
Robinhood has become a popular gateway to the stock market for new investors. It has grown from 1 million users in 2016 to more than 13 million last spring. Amid Reddit’s investor-driven GameStop drama, the traffic analysis site SimilarWeb estimates that 3 million more users downloaded Robinhood in January alone.
Robinhood, which is led by CEO Vlad Tenev, has been under scrutiny for its “gamification” of investments and allegedly predatory marketing practices.
Robinhood is also facing class action lawsuits from clients following the app’s decision to restrict trading of certain securities during the recent GameStop controversy. The brokerage firm, which has plans to go public 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 come under scrutiny for the access it gives its customers without well-invested education. Last year, Massachusetts regulators filed a complaint against Robinhood, accusing the trading app of predatory marketing on inexperienced investors.
The Securities and Exchange Commission in December accused the brokerage of misleading customers about how the stock trading app makes money and failing to deliver the promised best execution of trades.
The Kearns family complaint reads, “Robinhood not only allowed Alex to open the account, but when Alex was a freshman in college later that year, it allowed him to trade options.”
Even worse, Robinhood offered almost no investment guidance, and its customer service was virtually non-existent, consisting of automated email replies without any human contact or interaction, the family claimed in the lawsuit.
Here is Robinhood’s full statement on the lawsuit.
“We were devastated by the death of Alex Kearns. Since June, we’ve made improvements to our range of options. These include adding the ability to exercise contracts in the app, guidance to help customers with early allocation, updates on how we demonstrate purchasing power, more educational materials on options and new financial criteria and revised experience requirements for new customers looking to trade level 3 options. In early December, we also added live voice support for customers with open options position or recently expired, and we plan to expand to other use cases. We’ve also changed our protocol to escalate customers who email us for exercise assistance and early assignment. We remain committed to making Robinhood a place to learn responsibly and invest. “
– with reports from CNBC’s Dan Mangan and Kate Rooney.
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