The family of a 20-year-old trader who killed himself after seeing a massive negative balance in his account sued online brokerage Robinhood for wrongful death on Monday.
The parents and sister of Alex Kearns said Robinhood preys on inexperienced traders and that the company’s “misleading communications” caused him to panic, ultimately leading to his death.
“This case centers on Robinhood’s aggressive tactics and strategy to lure inexperienced and unsophisticated investors, including Alex, to take big risks with the lure of tantalizing profits,” the complaint said. “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.”
Kearns’ death drew headlines last summer, after the young trader was notified that an options trade he had conducted had resulted in a $730,000 loss and that he needed to immediately deposit around $178,000 to resolve the situation. With no way to pay such a sum and afraid his family would be forced to repay it, Kearns rode his bike in front of a train.
“How was a 20-year-old with no income able to get assigned almost $1 million worth of leverage?” he wrote in a goodbye note to his parents, according to the lawsuit.
Robinhood’s communications with Kearns did not mention that he already held options that would erase the negative balance once settled, the complaint said.
Robinhood had no customer-support phone number, and Kearns’ emails to the company got only automated replies, his family said. A day after his death, Robinhood sent him an automatic email saying the margin call had been made and he did not owe anything.
“He thought he blew up his life. He thought he screwed up beyond repair,” his father, Dan Kearns, told CBS News on Monday.
The lawsuit blames Robinhood’s “reckless conduct” for Kearns’ death, claiming the company made it too easy for beginning traders with little money and little investing knowledge to make huge trades, and offered insufficient customer support.
“We were devastated by Alex Kearns’ death,” Robinhood said in a statement. “Since June, we’ve made improvements to our options offering.”
Robinhood, which is popular with younger traders, had been criticized for “gamifying” stock trading and encouraging risky behavior. It’s also facing lawsuits for recent moves to restrict trading of a number of heavily shorted stocks, such as GameStop Corp.
following wild trading that was stoked by online message boards.