Robinhood sued by parents of Alex Kearns who died by suicide thinking he lost US$730,000
- Robinhood notified Alex Kearns in June of what he thought was a US$730,000 loss on a trade
- He was unable to communicate with anyone at the company, and was thrown into a highly distressed mental state
Robinhood was sued by the parents of a 20-year-old trader who killed himself last year after he incorrectly believed he had lost US$730,000 on an options trade.
The parents of Alex Kearns filed a wrongful-death lawsuit Monday in California state court, claiming the no-fee brokerage preys on inexperienced and unsophisticated investors like their son. They seek unspecified damages.
“Robinhood’s aggressive ploys to attract young customers, combined with its flagrant disregard for its duty of care to its customers, creates a time bomb that was destined to lead to the type of tragedy that happened to Alex,” according to the complaint.
With its playful interface, Robinhood has brought a new class of US traders into the market, raising concerns about the “gamification” of investing without fully explaining the risks. Critics claim Robinhood and other platforms have turned investing into an online social activity.
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Retail investors who strategised on Reddit message boards and executed their trades through online platforms such as Robinhood created turbulence in some stocks in recent weeks, including GameStop whose shares rose multiple times before retreating recently.
Alex Kearns had placed an option spread trade whereby he simultaneously acquired and sold put options in the same security, according to the complaint. He didn’t understand that the put options he had sold could be assigned before expiration, according to the complaint.
In June, Robinhood emailed Kearns notifying him he needed to deposit about US$178,000 to help rectify a negative balance, which the app showed was roughly US$730,000, according to the complaint. The company didn’t tell Kearns that he held options in his account that more than covered his obligation, and the negative balance would have been erased by the exercise and settlement of the puts he held, according to the complaint.
Kearns wasn’t able to connect with anyone at Robinhood that night to find out what was going on. He panicked and rode to a railroad crossing on his bicycle and ran in front of an oncoming train, according to the complaint.
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“If you’re reading this, I am dead,” he wrote in a suicide letter excerpted in the complaint.
“How was a 20 year old with no income able to get assigned almost a million dollars’ worth of leverage?” he asked.
“There was no intention to be assigned this much and take this much risk, and I only thought that I was risking the money that I actually owned. If you check the app, the margin investing option isn’t even ‘turned on’ for me,” he wrote.
“A painful lesson. F*** Robinhood. I was starting to look forward to my future, too, before I hit this pretty large speed bump. I cannot imagine the amount of pain this has caused you,” he wrote. “You could fill an ocean with the amount of tears I’ve shed typing this.”
Alex was a student at the University of Nebraska at Lincoln. His dream was to join the US Air Force, and in his spare time he loved playing the video game Mario Kart, baking, performing in a live band and watching Saturday Night Live.
“We were devastated by Alex Kearns’ death,” Robinhood said in a statement. “Since June, we’ve made improvements to our options offering. These include adding the ability to exercise contracts in the app, guidance to help customers through early assignment, updates to how we display buying power, more educational materials on options, and new financial criteria and revised experience requirements for new customers seeking to trade Level 3 options.”
The company said that it added, in early December, live voice support for customers with an open options position or recent expiration.
Bloomberg and Tribune News Service
If you are having suicidal thoughts, or you know someone who is, help is available. For Hong Kong, dial +852 2896 0000 for The Samaritans or +852 2382 0000 for Suicide Prevention Services. In the US, call The National Suicide Prevention Lifeline on +1 800 273 8255. For a list of other nations’ helplines, see this page.
