“Robinhood has built its trading platform to resemble a video game to attract young users and minimize the appearance of real risk,” read the lawsuit filed Monday in California by Kearns’ parents Dan and Dorothy and sister Sydney.
In addition to wrongful death, the Illinois family complaint accuses Robinhood of negligence of emotional stress and unfair business practices. The damage they seek will be determined at a later date.
“Tragically, Robinhood’s communications were completely misleading because in reality Alex owed no money,” the lawsuit said.
The tragedy illustrated the potential dangers of the free trade boom largely caused by Robinhood, which boomed during the pandemic.
In a statement, Robinhood explained that it has made a series of improvements to the range of options, including providing guidance to help customers, updates on how it represents purchasing power, and live voice support for customers with open option positions.
“We were devastated by the death of Alex Kearns,” Robinhood said. “We remain committed to making Robinhood a place to learn and invest responsibly.”
‘He was in complete panic’
Kearns, who started using Robinhood while in high school, died of suicide in June after placing a spread trade with a risk that “Alex didn’t understand,” the lawsuit said. His Robinhood account reflected a negative cash balance of $ 730,000 – a lot more money than he had, the lawsuit said.
“He panicked. His panic and despair intensified as he was unable to communicate with anyone at Robinhood for several hours,” the lawsuit said, adding that he repeatedly tried but did not contact representatives from the company.
Beyond the tragedy, Kearns did not realize that his massive negative balance would have been wiped out by the exercise and settlement of options he had, the lawsuit said.
Robinhood never bothered to explain this to Alex or to respond to his increasingly desperate requests for help, the lawsuit said.
The family blamed Kearns’ panic squarely on Robinhood.
“This resulted in a very distressed mental state in Alex, an uncontrollable impulse to commit suicide as the only option he could see,” they said.
Changes at Robinhood
Before ending his life, Kearns left a note indicating his confusion.
“How could a 20-year-old with no income be allocated nearly $ 1 million in leverage,” the note said, according to the lawsuit, adding that these were his last known written words.
After Kearns’ death, Robinhood co-founders wrote that they were “personally devastated by this tragedy” and pledged to make improvements to the app.
Robinhood said this week that the changes include new financial criteria and revised experience requirements for new clients who want to trade advanced options strategies and plan to expand that to other use cases. Robinhood also changed its system to escalate email support requests from some options traders.