Robinhood sued over 20-year-old American student trader’s suicide

Alex Kearns’ family alleges the 20-year-old took his own life after he thought he lost $730,000 that his family would be forced to repay.

A lawsuit filed in California Monday alleges Robinhood has an obligation to know its customers and ensure their trading strategies are appropriate, but instead the broker preyed on inexperienced investors [File: Gabby Jones/Bloomberg]

The family of a 20-year-old United States stock trader who died by suicide sued the broker Robinhood for his death, citing its “misleading communications” that caused their son to panic over what he wrongly believed were huge market losses, according to a lawsuit filed in California Monday.

Robinhood notified Alex Kearns in June of what he thought was a $730,000 loss on a trade and when he was unable to communicate with anyone at the company, the college student was thrown into a highly distressed mental state, the lawsuit stated.

As a result, fearing he had obligated his family to repay the huge loss, he ran in front of a train and killed himself, according to the lawsuit, which was filed in California state court.

“We were devastated by Alex Kearns’ death,” said a statement from Robinhood, which added that it was improving its educational materials and more live support staff, among other changes.

Monday’s lawsuit said Robinhood has an obligation to know its customers and ensure their trading strategies are appropriate but instead the broker preyed on inexperienced investors.

Kearns apparently believed an options trade placed through Robinhood had led to a $730,000 loss, far beyond the possible loss of about $10,000 that he had expected, according to the lawsuit. In reality, the loss was covered by other options in Kearns’ account, according to the lawsuit.

The lawsuit comes amid growing scrutiny of Robinhood’s commission-free trading and seeks unspecified damages.

The app helped increase a wild rally in shares of video game retailer GameStop Corp and other companies out of favour with Wall Street hedge funds in what has been touted as a revolution in retail trading.

However, Robinhood restricted trading in the most volatile stocks on January 28, a move it said was done to meet capital requirements, sparking an outcry among users and demands for its executives to testify before Congress.

Source: Reuters