A Court will decide if Robinhood really is a Killer App

On February 8th, a wrongful death lawsuit was filed against Robinhood, the stock trading and investment app. The case is about the tragic suicide of Alex Kearns, a twenty-year-old who took his own life after he mistakenly believed that he owed $730,000 while trading options.  As it turned out, a negative balance of $730,000 reflected in his Robinhood account was likely a temporary balance that would have been erased once exercised options settled to his account.

Late in the evening on June 11, 2020, Kearns received a notification from Robinhood that he owed $730,000 and that he didn’t meet cash requirements and had to deposit more than $178,000 within a few days. In the next few hours, Kearns reached out to Robinhood’s customer service several times, only to receive an automated reply. Later that day, Kearns committed suicide. But, in actuality, the options contracts Kearns had remaining in his account more than covered the $730,000 balance, and just a day after his death, Robinhood sent an email stating that the issue was resolved.

The complaint, filed in California state court, seeks unspecified damages on behalf of Kearns’ parents and sister for wrongful death, negligent infliction of emotional distress, and unfair business practices.  The complaint states that Robinhood built its app to look like a video game and entice young, inexperienced users.

The complaint alleges that Robinhood, as a broker-dealer, has a duty to ensure that its customers’ investments and strategies are suitable for their age, experience, investment knowledge, and available funds. They breached the duty of care.

It will be interesting to see whether this case and the publicity surrounding it will lead Robinhood to change its app to include educational resources, disclaimers, and live customer service. Robinhood markets itself to millennials with an easy-to-use design, no minimum deposit, and commission-free trades.  Will Robinhood start to look more like the competition it’s trying to differentiate itself from (E-Trade, TD Ameritrade, etc.)?

A copy of the complaint can be viewed or downloaded here:

In our previous article, we have provided a glimpse of the class actions filed against Robinhood for their late-January decision to temporarily stop allowing its users to trade shares of a few stocks, including GameStop Corp.  You can read that article here.

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