February 9, 2021 | AtoZ Markets – The family of Alex Kearns, a novice stock trader who killed himself have filed a lawsuit against trading app Robinhood over his death. The lawsuit, filed in Santa Clara County, California, seeks unspecified damages on behalf of the parents and sister of Kearns for wrongful death, negligent infliction of emotional distress and unfair business practices.
Robinhood sued for wrongful death of Alex Kearns
Mr Kearns, a student at the University of Nebraska-Lincoln, was 20 when he took his life last June after he misunderstood a potential loss from a stock options trade.
In the lawsuit, Mr Kearns' parents and sister assert that Robinhood employed "aggressive tactics and strategy to lure inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of tantalizing profits".
Robinhood also provided little or no investment guidance to its users, and its customer service was limited to automated e-mails, according to the complaint.
In an interview with CBS News, Kearns' parents noted that before committing suicide, he unsuccessfully tried to contact support. Mr Kearns received emails from Robinhood shortly after 11pm on June 11, informing him that his account was restricted and that he was required to buy $700,000 in shares as a result of an options trade, according to the lawsuit.
That left his account with a negative balance of $730,000 on a trade that he had understood would be limited to a maximum loss of less than $10,000, the lawsuit said.
Mr Kearns, desperate for answers, sent several emails to Robinhood's customer support, but only received auto-generated replies, according to the lawsuit.
In the early hours of the following day, he got an email from Robinhood saying he needed to deposit more than $178,000 within seven days to begin to address the negative balance, according to the lawsuit.
"Tragically, Robinhood's communications were completely misleading, because, in reality, Alex did not owe any money," the lawsuit said.
It claimed he held options in his account that more than covered his obligation, and the massive negative balance would have been erased by the exercise and settlement of these.
"This resulted in a highly distressed mental condition in Alex, an uncontrollable impulse to (kill himself) as the only option he could see," according to the lawsuit.
Read also: Is Robinhood App Reliable? Everything You Need to Know
SEC Fined Robinhood $65 Million
In December 2020, Robinhood's marketing activities caught the attention of the Securities Department of the Massachusetts Commonwealth Secretariat. They said the platform exposes clients to "unjustified trading risks" and "does not meet fiduciary standards."
In the same month, the US Securities and Exchange Commission fined Robinhood $65 million for misleading users by claiming that the service did not charge trading fees.
Recall that at the end of January 2021, the platform was at the epicenter of the scandal around the shares of GameStop and the Dogecoin cryptocurrency.
Read also: Robinhood Removes Trading Restrictions on Gamestop, AMC
On February 18, the US House of Representatives Financial Services Committee will examine Robinhood's actions. Legislators are interested in collusion between the service and hedge funds.
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