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Robinhood app sued by parents of novice trader who killed himself after wrongly thinking he’d lost £500,000

Evening Standard logo Evening Standard 09/02/2021 Michael Howie

The family of a novice stock trader who killed himself after mistakenly believing he lost more than 700,000 dollars (£500,000) are suing Robinhood Financial over his death.

The complaint, filed in Santa Clara County, California, seeks unspecified damages on behalf of the parents and sister of Alex Kearns for wrongful death, negligent infliction of emotional distress and unfair business practices.

Mr Kearns, a student at the University of Nebraska-Lincoln, was 20 when he took his life last June after he misunderstood a potential loss from a stock options trade.

In the lawsuit, Mr Kearns' parents and sister assert 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".

Robinhood also provided little or no investment guidance to its users, and its customer service was limited to automated e-mails, according to the complaint.

Mr Kearns received emails from Robinhood shortly after 11pm on June 11, informing him that his account was restricted and that he was required to buy 700,000 dollars (£500,000) in shares as a result of an options trade, according to the lawsuit.

a man wearing a suit and tie: Mr Kearns' parents accuse the US trading app of employing © Provided by Evening Standard Mr Kearns' parents accuse the US trading app of employing

That left his account with a negative balance of 730,000 dollars (£530,000) on a trade that he had understood would be limited to a maximum loss of less than 10,000 dollars (£7,250), the lawsuit said.

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Mr Kearns, desperate for answers, sent several emails to Robinhood's customer support, but only received auto-generated replies, according to the lawsuit.

In the early hours of the following day, he got an email from Robinhood saying he needed to deposit more than 178,000 dollars (£130,000) within seven days to begin to address the negative balance, according to the lawsuit.

"Tragically, Robinhood's communications were completely misleading, because, in reality, Alex did not owe any money," the lawsuit said.

It claimed he held options in his account that more than covered his obligation, and the massive negative balance would have been erased by the exercise and settlement of these.

After not being able to speak with anyone from Robinhood, Mr Kearns became more desperate and fearful of the mammoth financial obligation, according to the complaint.

"This resulted in a highly distressed mental condition in Alex, an uncontrollable impulse to (kill himself) as the only option he could see," according to the lawsuit.

Robinhood, which is based in Menlo Park, California, issued a statement in response to the lawsuit on Monday saying it was devastated by Mr Kearns' death and has since made improvements to its options offerings.

The measures include adding more educational materials on options trading and new financial criteria and experience requirements for new customers seeking to trade some options.

"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," the company said.

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