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LOS ANGELES (AP) – The family of a novice stockbroker who killed himself after mistakenly believing he lost more than $ 700,000 is suing Robinhood Financial, claiming that the business practices of the popular stock trading platform led “directly” your son’s death.
The complaint, filed on Monday in the Santa Clara County, California state court, seeks unspecified damages on behalf of Alex Kearns’ parents and sister for wrongful death, negligent infliction of emotional suffering and unfair business practices.
Kearns, a student at the University of Nebraska-Lincoln, was 20 when he committed suicide last June, after misinterpreting a potential loss from a stock option trade.
In the process, Kearns’ parents and sister claim that Robinhood employed “aggressive tactics and strategies to attract inexperienced and unsophisticated investors, including Alex, to take big risks by attracting tempting profits”.
Robinhood also provided little or no investment guidance to its users, and its customer service was limited to automated emails, according to the complaint.
Kearns received emails from Robinhood shortly after 11 pm on June 11, informing him that his account was restricted and that he should buy $ 700,000 in shares as a result of an options trade, according to the lawsuit. That left Kearns’ account with a negative balance of $ 730,000 in a deal he understood would be limited to a maximum loss of less than $ 10,000, the suit says.
Kearns, desperate for answers, sent several emails to Robinhood’s customer support, but only received automatically generated responses, according to the process. Then, after 3:30 am, Kearns received an email from Robinhood saying he needed to deposit more than $ 178,000 in seven days to begin resolving the negative balance, according to the lawsuit.
“Tragically, Robinhood’s communications were completely misleading, because in reality, Alex owed no money; he had options in his account that more than covered his obligation, and the huge negative balance would have been erased by the exercise and settlement of the “options that Kearns had, according to the lawsuit.
After being unable to speak to anyone from Robinhood, Kearns became more desperate and afraid of the gigantic financial obligation, according to the complaint.
“This resulted in a highly distressed mental condition in Alex, an uncontrollable urge to commit suicide as the only option he saw,” according to the lawsuit.
Robinhood, who is based in Menlo Park, Calif., Issued a statement in response to the lawsuit on Monday, saying he was devastated by Kearns’s death and has since made improvements to his options offerings. The measures include adding more educational materials on options trading and new financial criteria and experience requirements for new clients looking to trade some options.
“In early December, we also added live voice support for customers with an open options position or a recent expiration, and we plan to expand to other use cases,” said the company.
Robinhood drew criticism and regulatory scrutiny in his effort to bring more normal people into investment, not just wealthy investors already well versed in the market.
In December, regulators in Massachusetts filed an administrative complaint against the company, claiming that Robinhood violated securities laws by aggressively marketing to Massachusetts investors without regard to its clients’ best interests. At the time, Robinhood said he disagreed with the complaint and intended to mount a vigorous defense.
Critics say Robinhood makes trading in stock and publicly traded funds so cheap, easy and perhaps even fun that it can allow unsophisticated investors to buy and sell very risky investments very often.
The company informs customers on its website that they can “level up with options trading”, for example. With options, investors buy a contract that gives them the possibility to buy or sell a stock or ETF in the future at a given price. Trading options allow for potentially large profits at a low initial cost, but it can also be more risky than buying a normal stock if the bet goes wrong. And if traders borrow money to stimulate their options trading, the risk increases even more.
Robinhood, however, forced huge and revolutionary changes for the brokerage sector. His decision to charge zero commissions to clients who trade in stocks and ETFs led the industry’s biggest players to eventually follow suit – and join. Charles Schwab bought TD Ameritrade and Morgan Stanley acquired E-Trade Financial to try to be more competitive.
Investors in Robinhood and other trading platforms have also influenced prices on Wall Street. Analysts attribute these investors to helping boost stocks sharply higher last month at GameStop and AMC Entertainment, and Tesla and other Big Tech companies last summer, as the economy struggled.