Robinhood Financial is being sued by the family of a man who, believing he’d lost more than $700,000, killed himself last summer.
Twenty-year-old Alex Kearns was a novice stock trader and student at the University of Nebraska-Lincoln who misunderstood what appeared to be a devastating loss from a stock-options trade.
His parents and sister filed a complaint on Monday in state court in Santa Clara County seeking unspecified damages for wrongful death, negligent infliction of emotional distress and unfair business practices. The family asserts in the suit 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.”
Also detailed in the complaint are claims that Robinhood provided inadequate guidance to its users and follow-up customer service.
On June 11th, Kearns received notice via email from Robinhood that his account was restricted and, as a result of an options trade, he was required to buy $700,000 worth of shares. According to the lawsuit, it was Kearns’ understanding that the trade would be limited to a maximum loss of less than $10,000.
Kearns, alarmed by the correspondence, desperately sought clarification by emailing Robinhood’s customer support. Initially, he only received auto-generated replies according to the lawsuit. Hours later, Kearns received email correspondence saying he needed to deposit more than $178,000 within a week to begin addressing the negative balance.
The plaintiffs also allege “This resulted in a highly distressed mental condition in Alex, an uncontrollable impulse to commit suicide as the only option he could see.”
Robinhood responded to the lawsuit in a statement saying it was devastated by Kearns’ death and said improvements to its options offerings have been made including the addition of more materials to educate on options trading as well as new financial criteria and experience requirements for new customers. The company also said, “In early December, we also added live voice support for customers with an open options position or recent expiration, and plan to expand to other use cases.”
Critics of the online stock trading company say they could be enabling unsophisticated investors to too often engage in the buying and selling of high-risk investments.