- Free Consultations / No Fees Until We Win
- (213) 927-3700
Personal Injury Firm
The stock trading app Robinhood reportedly settled the wrongful death lawsuit over the suicide of a 20-year-old college student who took his life after thinking he lost $730,000 on the app. The company disclosed the settlement with Alex Kearns’s parents in its S-1 filing, though the terms were not disclosed.
In its recent public filing for an IPO, Robinhood reportedly said that the lawsuit was “dismissed with prejudice following a settlement between the parties.” The Kearn’s had filed the lawsuit in state court in Santa Clara County, California, back in Feb. claiming the no-fee brokerage preys on inexperienced and unsophisticated investors like their son. The lawsuit asserted claims for negligent infliction of emotional distress and unfair business practices under a California statute, in addition to wrongful death.
Last June, the 20-year-old killed himself after seeing a negative balance of $730,000 in his account on the stock-trading app. However, the balance did not reflect the portfolio’s value or debt owed. It likely came from complex options trades, which can leave temporary balances while they settle over multiple days.
As reported by CBS News, Kearns emailed Robinhood asking for help after seeing his balance before the best. “I was incorrectly assigned more money than I should have, my bought puts should have covered the puts I sold. Could someone please look into this?” he wrote. Robinhood replied with an automated message saying the company would get back to him, but their response could be delayed.
However, Fortune reported last year that Robinhood emailed Kearns notifying him he needed to deposit about $178,000 to help rectify a negative balance, which the app showed was roughly $730,000. The company didn’t tell Kearns that he held options in his account that more than covered his obligation, and the negative balance would have been erased by the exercise and settlement of the puts he held.
As stated on the complaint, Kearns wasn’t able to connect with anyone at Robinhood that night to find out what was going on. He panicked and rode to a railroad crossing on his bicycle and ran in front of an oncoming train. Just a day after his death, Robinhood sent an email stating that the issue was resolved.
Critics have claimed that Robinhood, and other similar platforms, have turned investing into an online social activity. As written by Fortune, “With its playful interface, Robinhood has brought a new class of U.S. traders into the market, raising concerns about the ‘gamification’ of investing without fully explaining the risks.”
In response to Kearns’ death, Robinhood reportedly added educational materials and a live customer support chat function for users trading options in Dec. 2020. The app now also restricts options trading for inexperienced users, but the restrictions are largely self-declared and easy to bypass.