Robinhood was sued Monday for unjustified death by the family of Alex Kearns, a 20-year-old customer who ended his life last summer after believing he had amassed heavy losses on his favorite stock trading app by the thousand · Lenari.
“This case focuses on Robinhood’s aggressive tactics and strategy to attract inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of tempting profits,” said the complaint filed by her parents Dan and Dorothy Kearns, and his sister Sydney Kearns in a California state court in Santa Clara. The family is headquartered in Naperville, Illinois.
“Robinhood’s reckless conduct directly and immediately caused the death of one of its victims,” the complaint said. The lawsuit is also accusing the broker of negligently inflicting emotional distress and unfair business practices.
Alex Kearns, a sophomore at the University of Nebraska at Lincoln, committed suicide in June after thinking he had a negative cash balance of $ 730,165 in Robinhood.
The complaint alleges that Kearns misunderstood Robinhood’s financial statement and was protecting his family from financial obligation.
The lawsuit says Kearns made three attempts to contact Robinhood’s customer service regarding the massive underwater balance.
However, his messages received automatic replies, according to the complaint.
In a note to his family that CNBC has seen, Kearns accused Robinhood of allowing him to accumulate too many risks. According to the note, he stated that the purchases he bought and the shares sold “should have been canceled”.
Positions 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, according to the note.
“How could a 20-year-old with no income be assigned a leverage of about $ 1 million?” read the note Kearns wrote to his family. “There was no intention for me to be so assigned and take that risk, and I just thought I was risking the money I really owned.”
A Robinhood spokesman told CNBC: “We were devastated by the death of Alex Kearns. Since June, we have improved our range of options.”
Robinhood has become a popular entry point into the stock market for first-time investors. It went from 1 million users in 2016 to more than 13 million last spring. Amid the GameStop drama fueled by Reddit investors, the traffic analysis site SimilarWeb estimates that 3 million more users downloaded Robinhood in January alone.
Robinhood, led by CEO Vlad Tenev, has been scrutinized for its “gamification” of investment and alleged predatory marketing practices.
Robinhood is also facing collective customer lawsuits following the app’s decision to restrict trading in certain securities during the recent GameStop controversy. The brokerage firm, which plans to go public in 2021, has repeatedly said that most of its users are long-term investors.
Robinhood, one of the biggest beneficiaries of the retail boom in 2020, has also been brought under control for the access it offers its customers without proper reverse education. Last year, Massachusetts regulators filed a lawsuit against Robinhood, accusing the trading application of predatory trading to inexperienced investors.
The Securities and Exchange Commission accused the brokerage in December of misleading customers about how the stock trading app makes money and failed to deliver the best promised execution of trades.
The Kearns family’s complaint says, “Robinhood not only allowed Alex to open the account, but when Alex was a freshman in college later that year, it allowed him to change options.”
“Worse still, Robinhood provided almost no investment guidance and its‘ customer service ’was virtually non-existent, consisting of automatic email responses with no interaction or human interaction,” the family alleged in the lawsuit. .
Here is Robinhood’s full statement on the lawsuit.
“We were devastated by the death of Alex Kearns. Since June, we have made improvements to our range of options. They include the ability to exercise contracts in the app, guidance to help clients assign themselves early, updates on how we show purchasing power, more educational materials on options and new financial criteria and revised experience requirements for new customers who want to trade level 3 options. In early December, we also added live voice assistance to to customers with an open options position or recently expired and we plan to expand to other use cases.We have also changed our protocol to increase customers who send us an email to get help with the exercise and the We are committed to making Robinhood a place to learn and invest responsibly. “
– with reports from Dan Mangan and Kate Rooney of CNBC.
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