Robinhood Markets Inc. 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 Santa Clara County, 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 U.S. 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.
Retail investors who strategized on Reddit message boards and executed their trades through online platforms such as Robinhood created turbulence in some stocks in recent weeks, including GameStop Corp. 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.
Robinhood didn’t immediately respond to a request for comment.
The case is Kearns v. Robinhood Financial LLC, 21CV375872, Santa Clara County Superior Court.
Advertisement