Financial firm Robinhood is facing a lawsuit from the family of a 20-year-old trade who committed suicide last year.
The family of Alexander Kearns is suing Robinhood for the wrongful death of the college student who died by suicide after seeing a negative balance of $730,000 in his trading account and mistakenly thought he owed that sum of money.
Suicide and platform changes
Kearns, who had been using Robinhood to trade complex options instruments, was found dead on June 12, 2020 in Plainfield, Illinois. While factors that contributed to his death remain unclear, it has been ruled a suicide according to his family and Robinhood.
The young trader’s death has emphasized the potential dangers of the free-trading boom inspired by Robinhood. The trading app gave first-time investors easy access to exotic financial instruments typically used by sophisticated investors.
The Kearns family believes that the app’s interface misled Alexander to believe that he owed $730,000, when that was not really the case.
Bill Brewster, a cousin-in-law of Kearns, said: “The kid threw himself in front of a train over nothing, because a tech company can’t figure out they shouldn’t show a negative $730,000 cash balance to a 20-year-old kid.”
“How much are these guys thinking about the fire they are playing with?” Brewster added.
Brewster tweeted a note he claims Kearns left behind before his death, which showed that he was distraught and confused over his Robinhood account. Brewster argued: “How was a 20-year-old with no income able to get assigned almost a million dollars’ worth of leverage?”
In the note, Kearns stated: “The puts I bought/sold should have cancelled out, too, but I also have no clue what I was doing now in hindsight.”
Brewster admitted that he initially thought Robinhood had improperly given Kearns huge amounts of leverage to trade with but realized it was not the problem.
Brewster pointed out: “My sense is that it was all over nothing. It was a user interface issue.”
He blamed the company for pushing the product to young traders without placing safeguards to prevent confusion. “That they didn’t have enough foresight to think this might happen is offensive to me,” he said.
Following Brewster’s long Twitter thread about Kearns’ death, the company announced a series of changes to its options offering and user interface directly in response to the incident.
Robinhood pledged to do more to explain how these sophisticated trading strategies work. The company’s planned changes include the way buying power is displayed.
Robinhood said it would also improve its in-app messages and emails that get sent to customers about options transactions as well as changes to the in-app history page to help users “understand the mechanics” of options trades.
The lawsuit
In the filing, Kearns' parents Dan and Dorothy and sister Sydney stated: "Robinhood built out its trading platform to look much like a videogame to attract young users and minimize the appearance of real-world risk."
Aside from wrongful death, the family also accused Robinhood of negligent infliction of emotional stress and unfair business practices. "Tragically, Robinhood's communications were completely misleading because, in reality, Alex did not owe any money," the lawsuit said.
In response to the lawsuit, a Robinhood spokesperson said: “We were devastated by Alex Kearns’ death. Since June, we’ve made improvements to our options offering. These include adding the ability to exercise contracts in the app, guidance to help customers through early assignment, updates to how we display buying power, more educational materials on options, and new financial criteria and revised experience requirements for new customers seeking to trade Level 3 options.”
