How Robinhood Has Found Itself in a Wrongful Death Lawsuit
Just a couple of years ago, Robinhood was a company poised to disrupt the brokerage world with commission-free trades focused on the needs and wants of everyday retail traders. The company believed it could target millennials and younger generations and sweep market share away from competitors like eTrade, Schwab, TD Ameritrade, and others. And for a good stretch of time, the plan worked.
But Robinhood is running into its first substantial speed bumps. Regulators were starting to raise eyebrows at Robinhood's marketing practices, which appeared to be minimizing the risk of trading and focusing on recruiting young, inexperienced clientele.
Then the GameStop fiasco happened. Pressure on Robinhood is coming from many directions, with users upset at being blocked out of trades and some D.C. lawmakers equally charged that Robinhood appeared to give preference to hedge funds over retail investors. Robinhood had to raise billions of new investor capital to posture itself for necessary changes in the future.
The latest salvo in the Robinhood saga -- a wrongful death lawsuit.
Alex Kearns, an undergrad at the University of Nebraska, committed suicide last week after initiating a sophisticated $10,000 options trade. The trade went the wrong way, and Mr. Kearns received emails from Robinhood that he needed to deposit $178,000 in a few days to rectify a negative balance. The Robinhood app also showed Mr. Kearns his negative balance was $730,000, which sent Alex into a flurry of panic -- trying to contact Robinhood customer support, to no avail.
According to a complain filed by Mr. Kearns' family, he "wrote a note asking how someone of his inexperience was allowed to trade so easily, then killed himself." It turns out that Mr. Kearns had offsetting options he could have exercised to offset his $730,000, but he never realized that because no one at Robinhood ever responded to his service requests.
Robinhood was once the darling of 'new school' online brokerages, but it faces a tougher road ahead. Below, Tickeron's A.I. analyzes the landscape for brokerages.
