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This article is republished here with permission from The Associated Press. This content is shared here as the topic may be of interest to Snopes readers; however, it does not represent the work of the fact-checkers or editors of Snopes.
LOS ANGELES (AP) – The family of a novice stock trader who committed suicide after mistakenly believing he lost more than $ 700,000 is suing Robinhood Financial, claiming that the trading practices of the popular trading platform actions “directly” led to the death of their son.
The lawsuit, filed Monday in state court in Santa Clara County, Calif., Seeks unspecified damages on behalf of Alex Kearns’ parents and sister for wrongful death, negligent infliction of emotional distress and practices unfair trade.
Kearns, a student at the University of Nebraska-Lincoln, was 20 when he committed suicide last June after misunderstanding a potential loss from a stock options trade.
In the lawsuit, Kearns’ parents and sister claim that Robinhood used “aggressive tactics and strategy to trick inexperienced and untrained investors, including Alex, into taking big risks with the allure of tempting profits.”
Robinhood also provided little or no investment advice to its users, and its customer service was limited to automated emails, according to the complaint.
Kearns received emails from Robinhood shortly after 11 p.m. on June 11, informing him that his account was restricted and that he had to buy $ 700,000 in stock as a result of an options swap, according to the lawsuit. This left Kearns’ account with a negative balance of $ 730,000 on a transaction he said would be limited to a maximum loss of less than $ 10,000, the lawsuit says.
Kearns, desperate for answers, sent several emails to Robinhood customer support, but only received auto-generated responses, according to the lawsuit. Then, after 3:30 a.m., Kearns received an email from Robinhood saying he had to deposit more than $ 178,000 within seven days to start settling the negative balance, according to the lawsuit.
“Tragically, Robinhood’s communications were completely misleading, because in reality Alex owed no money; he held options in his account that covered more than his obligation, and the massive negative balance was reportedly wiped out through the exercise and settlement of “options held by Kearns, according to the lawsuit.”
After not being able to tell anyone about Robinhood, Kearns became more desperate and more fearful of the gigantic financial obligation, according to the complaint.
“This resulted in a very distressed mental state in Alex, an uncontrollable urge to kill himself as the only option he could see,” according to the lawsuit.
Robinhood, who is based in Menlo Park, Calif., Released a statement in response to the lawsuit on Monday, saying she was devastated by Kearns’ death and has since improved her option offerings. The measures include the addition of more educational material on options trading and new financial criteria and experience requirements for new clients looking to trade certain options.
“In early December, we also added live voice support for clients with an open options position or a recent expiration, and we plan to expand to other use cases,” the company said.
Robinhood has drawn criticism and regulatory scrutiny in its drive to get more regular people to invest, not just wealthy investors who are already knowledgeable about the markets.
In December, Massachusetts regulators filed an administrative complaint against the company, alleging that Robinhood violated securities laws by actively promoting itself to Massachusetts investors without regard to the best interests of its clients. At the time, Robinhood said he disagreed with the complaint and intended to mount a vigorous defense.
Critics say Robinhood makes trading stocks and exchange-traded funds so cheap, easy and maybe even fun that it could allow unsophisticated investors to buy and sell too risky investments too often. .
The company tells clients on its website that they can “take it to the next level with options trading”, for example. With options, investors buy a contract that gives them the ability to buy or sell a stock or ETF in the future at a fixed price. Trading options potentially allow for big profits at a low initial cost, but it can also be riskier than buying a single vanilla stock if the bet goes the wrong way. And if traders borrow money to optimize their options trades, it further increases the risk.
Robinhood nonetheless imposed huge revolutionary changes on the brokerage industry. His decision to charge zero commissions to clients who trade stocks and ETFs has prompted the biggest players in the industry to follow suit – and to regroup. Charles Schwab bought TD Ameritrade and Morgan Stanley acquired E-Trade Financial in an attempt to be more competitive.
Investors in Robinhood and other trading platforms also influenced prices on Wall Street. Analysts give these investors credit for helping to push stocks up sharply last month in GameStop and AMC Entertainment, as well as Tesla and other big tech companies last summer, when the economy was in turmoil. difficulty.
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