Alexander Kearns of Illinois was 20 years old in June 2020 when he died by suicide, a tragedy his parents – Dan and Dorothy Kearns – attribute to him believing he lost almost $750,000 trading on the app Robinhood.
Dan and Dorothy are suing the millennial-focused app for the wrongful death of their son, negligent infliction of emotional distress and unfair business practices, according to documents obtained by CBS News on Monday.
Alex had a long interest in finance, the Kearns family told CBS. Before he had graduated high school, the young man began investing with Robinhood, an app whose stated goal is to “democratize” investing and to bring more regular people into investing. The company has forced huge, ground-shaking changes for the brokerage industry, such as its decision to charge zero commissions for customers trading stocks and exchange-traded funds.
The company tells customers on its website that they can “level up with options trading,” for example. With options, investors buy a contract that gives them the possibility of buying or selling a stock or ETF in the future at a set price. Trading options allows for potentially big profits at a low initial cost, but it can also be riskier than buying a plain vanilla share of stock if the bet goes the wrong way. And if traders borrow money to juice their options trades, it raises the risk even more.
As such, inexperienced users can buy and sell stock options without much oversight – which is how Alex’s parents believe their son got into trouble.
While Alex originally started trading with his own savings of about $5,000 – which his father referred to as "Grandma and Grandpa money" – he was soon approved for upwards of $1 million in leverage.
On June 11, the Kearns family told CBS, their son received a message from Robinhood saying he had a negative balance of $730,000. Around 3:30 a.m. the next morning, the company sent Alex a notification saying he needed to make a payment of $170,000 in the next few days.
With no listed customer service phone number at the time, Alex reportedly sent three emails to Robinhood representatives seeking help. One message reportedly read: "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?"
The 20-year-old reportedly received an automated response from the app, saying they would get back to him as soon as possible. Later that same day, Kearns took his own life.
The next day, Robinhood reportedly sent this email to Kearns, notifying him that he did not owe any money: "We're reaching out to confirm that you've met your margin call and we've lifted your trade restrictions. If you have any questions about your margin call, please feel free to reach out. We're happy to help!"
But the damage had already been done. In a note written to his parents shortly before his death, Alex Kearns wrote in part: "The puts I bought/sold should have cancelled out, too, but I also have no clue what I was doing now in hindsight. There was no intention to be assigned this much and take this much risk, and I only thought that I was risking the money that I actually owned. If you check the app, the margin investing option isn't even 'turned on' for me. A painful lesson. F*** Robinhood."
The fact that his son died trying to save his family from “what he thought was impending financial disaster” is something that will forever “haunt” Dan Kearns.
"I lost the love of my life. I miss him more than anything," Dorothy Kearns told CBS News. "I can't tell you how incredibly painful it is. It's the kind of pain that I don't think should be humanly possible for a parent to overcome."
“We don't want another family to go through this," she added, saying the company "must be held accountable” for its role in the death of her son.
Robinhood has drawn criticism and regulatory scrutiny in its drive to bring more regular people into investing, not just wealthy investors already well versed in the markets.
Critics say Robinhood may be offering too much of a good thing. By making trading stocks and exchange-traded funds so cheap, easy and maybe even fun, it could be enabling unsophisticated investors to buy and sell too-risky investments too often — which the Kearns family maintains is what happened to their son.
"The information (Robinhood) gave him was just incredibly skewed. And possibly completely wrong, because they make it look like you owe $730,000 when you really don't owe anything," Benjamin Blakeman, an attorney for the Kearns family, told CBS News. "That could panic just about anybody."
Company cofounders Vlad Tenev and Baiju Bhatt wrote in a statement they were "personally devastated by this tragedy" soon after learning of Kearns’ death, and pledged to update its customer experience. The updates included additional criteria and education for those seeking to make high-level trades, and the ability for users to escalate certain issues for quicker response times.
Despite these changes, the company was hit with additional accusations of downplaying the risks of trading late last year.
In December 2020, regulators in Massachusetts claimed Robinhood targeted and manipulated inexperienced investors and failed to prevent costly outages on its popular stock trading platform.
Secretary of the Commonwealth William Galvin alleged in a complaint that Robinhood violated securities laws by aggressively marketing itself to Massachusetts investors “without regard for the best interest of its customers,” while also failing to maintain a properly working platform as its number of users exploded.
In a statement, the California-based company said it disagreed with the complaint and said it would mount a vigorous defense.
And in 2019, the Financial Industry Regulatory Authority fined Robinhood $1.25 million after accusing it of not doing everything it could to find the best prices for customers trading stocks. Robinhood neither admitted nor denied the allegations in the settlement.
If you or someone you know needs help, call the National Suicide Prevention Lifeline at 1-800-273-8255 or text HELLO to 741741, the Crisis Text Line.
The Associated Press contributed to this report.