“Robinhood built his trading platform to look a lot like a video game to attract young users and minimize the risky appearance of the real world,” says the lawsuit opened Monday in California by Kearns’ parents, Dan and Dorothy and sister Sydney.
In addition to the unjust death, the complaint filed by the Illinois family accuses Robinhood of negligent infliction of emotional stress and unfair business practices. The damages they seek will be determined later.
“Tragically, Robinhood’s communications were completely misleading because, in reality, Alex owed no money,” the suit said.
The tragedy illustrated the potential dangers of the free trade boom unleashed largely by Robinhood, which grew explosively during the pandemic.
In a statement, Robinhood explained that it has made a number of improvements to its options offering, including guidance to help customers, updates on how to display purchasing power and live voice support for customers with open option positions.
“We were devastated by the death of Alex Kearns,” said Robinhood. “We remain committed to making Robinhood a place to learn and invest responsibly.”
‘He was in complete panic’
Kearns, who started using Robinhood when he was still a senior in high school, died of suicide in June after spreading an option containing an “Alex didn’t understand” risk, according to the lawsuit. His Robinhood account reflected a negative cash balance of $ 730,000 – far more money than he had, the suit said.
“He was in a total panic. His panic and despair increased because he was unable to communicate for several hours with anyone at Robinhood,” said the suit, adding that he tried several times and was unable to contact company representatives.
Adding to the tragedy, Kearns did not realize that his huge negative balance would have been erased by the exercise and settlement of the options he had, the suit said.
“Robinhood never bothered to explain this to Alex or respond to his increasingly desperate requests for help,” said the suit.
The family blamed Robinhood for Kearns’ panic.
“This resulted in a highly distressing mental condition in Alex, an uncontrollable urge to commit suicide as the only option he saw,” they said.
Changes in Robinhood
Before taking his own life, Kearns left a note that signaled his confusion.
“How a 20-year-old with no income managed to get almost $ 1 million in leverage,” the note said, according to the lawsuit, adding that these were his last known written words.
After Kearns’s death, Robinhood’s co-founders wrote that they were “personally devastated by this tragedy” and promised to make improvements to their app.
Robinhood said this week that his changes include new financial criteria and revised experience requirements for new customers looking to negotiate advanced option strategies and plans to expand this to other use cases. Robinhood also changed his system to escalate email support requests from some options traders.