The family of Alex Kearns, who killed himself last year, have filed a lawsuit against trading app Robinhood over his death.
The lawsuit, first reported by CBS News, said the 20-year-old mistakenly believed he owed $730,000 when he took his own life.
Alex’s parents, Dan and Dorothy Kearns, say their son was unable to get help or support from customer services before he died.
Robinhood, which allows anyone to buy and trade stocks, says on its website that it is “on a mission to democratize finance” and is currently running an advertising campaign under the slogan of “We are all investors”.
The app recently made headlines for limiting sales of some shares to users after US retailer GameStop saw its stock surge.
Speaking to CBS, the parents of Alex Kearns say he began using Robinhood just before he graduated high school.
Dan and Dorothy Kearns say they did not know the app had also approved him to buy and sell options – a risky financial instrument – despite a lack of financial experience.
They say their son realized on June 11, 2020, that his account had been restricted by Robinhood amid what appeared to be a negative balance of more than $700,000 on his account.
CBS reports Alex Kearns received an automated email at 03:26 early the next morning asking him to take “immediate action” to pay more than $170,000 within days.
The family say the student emailed customer service several times asking for support and help understanding the figures on his trading account, but only received stock response messages saying they would get back to him.
“They provide no mechanism through a telephone call, through live email service, to get live answers to questions,” a lawyer for the family told CBS.
Alex’s parents were told by police later that day, on June 12, that their son had died.
“He thought he blew up his life. He thought he screwed up beyond repair,” Dan Kearns said in the interview, in which he said his son had “just needed a little help”.
Dan and Dorothy Kearns say an email from Robinhood, received the day after his death, clarified that trading restrictions had been lifted and the trade resolved.
The lawsuit, filed in California state court, said the loss had been covered by other options in Alex’s account and accuses Robinhood’s “misleading communications” of leading to “panic and confusion”.
According to media reports, the wrongful death lawsuit accuses Robinhood of unfair business practices and negligent infliction of emotional distress.
If you’re in an emergency, please call 911. You can contact the US National Suicide Prevention Lifeline on 1-800-273-8255 or the Crisis Text Line by texting HOME to 741741.
Tesla boss’ 90-minute appearance was a major coup for Clubhouse, which is currently in a “beta” testing phase and requires users to be invited to access its platform.
It allows people to join private rooms for conversations, but participants are capped at 5,000.
However, fans streamed the interview on YouTube and overflow rooms on the platform, as Elon Musk’s appearance attracted unprecedented attention.
Elon Musk also spoke about travel to Mars, Bitcoin and brain implants during his session.
Robinhood curbed buying of GameStop and some other shares last week.
Unlike most trading platforms, it does not charge a commission for letting users buy and sell shares. Instead it makes money by selling data on those deals to others before they go through.
Some hedge funds have lost out on the rise in GameStop’s shares because they had shorted the stock. This is where an investor tries to make money by betting a company’s share price will fall.
Elon Musk questioned to what degree Robinhood was “beholden to” Citadel Securities, which is its biggest client. Citadel has suffered losses as a result of an investment in a hedge fund that had taken a large short position on GameStop.
He has previously been critical of short selling, claiming it to be a “legal” scam.
Vladimir Tenev acknowledged that there had been “a rumor that Citadel or other market makers kind of pressured us into” putting restriction on trades, but added the claim was “just false”.
“Robinhood stands for, you know, democratizing access to stocks,” he said on Clubhouse.
“We want to give people the access… but we had no choice in this case, we had to conform to our regulatory capital requirements.”
Elon Musk asked in response: “Did you sell your clients down the river, or [did] you have no choice?”
Vladimir Tenev repeated that Robinhood had to comply with financial requirements.
He said this involved an order from the National Securities Clearing Corporation – a clearing house used by the company – to provide “around $3bn” to back up its trades. He added the demand was later reduced to $700 million.
Vladimir Tenev conceded, however, that Robinhood needed to be more transparent.
“We were able to open and serve our customers,” he said, adding that Robinhood had raised more than $1bn within 24 hours.
“When we do open [on Monday]… we’ll be able to kind of relax the stringent position limits that we put on these securities on Friday.”
Elon Musk also came out in support of Bitcoin, saying he thought it was on “the verge of getting a broad acceptance” by conventional finance.
Bitcoin has surged in value in recent months, but some experts say it is volatile and will crash soon.
Elon Musk also said human travel to Mars will be possible within five-and-a-half years – and outlined his vision to relocate some humans there from Earth.
He also said he believed he could get the journey time to the Red Planet down from six months to one month.
Another of Elon Musk’s projects, Neuralink, received attention in the interview.
The start-up explores ways to connect the human brain to a computer interface.
Elon Musk said he hoped the technology could be used, in early applications, for humans with serious brain injuries.
Amateur investors are responding with outrage after trading platforms restricted buying of shares in GameStop and other companies.
The moves by Robinhood and Interactive Brokers follow days of frenzied trading that led to massive gains for some stocks.
Shares in GameStop dived by as much as 60% after the restrictions.
It is the latest twist in a battle that has pitted amateur investors against Wall Street giants.
Major hedge funds had bet billions of dollars that GameStop’s shares would fall.
They have faced major losses after amateurs, swapping tips on social media sites such as Reddit, drove up the share price by more than 700% in a week.
Other firms, such as AMC Entertainment, Koss Corp and BlackBerry, also saw sharp gains. They were embraced by day traders after hedge funds bet against them.
The activity has drawn questions from regulators, who are monitoring trading amid fears of illegal actions.
But the amateur investors say they are just playing Wall Street at its own game.
In online forums they discussed legal action and accused Robinhood and other brokerages enacting their own form of market manipulation by restricting purchases of certain shares.
Why have GameStop shares surged?
Key to what’s going on is “short selling” or “shorting”, where a big investment company such as a hedge fund tries to make money by betting that a company’s share price will fall.
The hedge fund borrows shares in a company from other investors (for a fee) and sells the shares on the markets at, for example, $10 each, waits until they fall to $5, and buys them back. The borrowed shares are returned to the original owner, and the hedge fund pockets a profit.
GameStop – which saw heavy losses last year and was described as “failing” by one big investor – is the most shorted stock on Wall Street. Some 30% of its shares are thought to be in the hands of hedge fund borrowers.
However, in the last week, amateur investors who follow the Wall Street Bets forum on Reddit have poured money into buying the company’s stock with the aim of pushing up the price.
If the price rises dramatically, short sellers face big losses and they need to buy back the shares they have borrowed quickly to prevent bigger losses – a process known as covering.
However, buying back the shares only adds to demand for the stock and pushes its price higher still.
Amateurs aren’t the only ones getting in on the action.
This week, for example, private equity firm Silver Lake Group, which had loaned money to AMC Entertainment, converted its bonds to shares after the surge in the firm’s prices, a swap worth hundreds of millions of dollars.
In the US, anger over the trading restrictions united politicians whose stances typically sharply diverge.
Senator Sherrod Brown, a Democrat who is taking over as chair of the banking committee, said he would hold a hearing about the “state of the stock market”.
He said: “People on Wall Street only care about the rules when they’re the ones getting hurt.”
What is GameStop?
GameStop is an American high street shop that sells games, consoles and other electronics.
With fewer people out shopping due to the Covid-19 pandemic and most games being sold online, things weren’t looking great for GameStop.
People who buy and sell stocks often bet on which companies won’t do well in the future.
They borrow shares in the company and sell them, with a promise to buy them back at a later date.
If you’re sure the company will lose value, you’d make a profit when you buy them back and the price has fallen.
This is a massively simplified explanation of something called shorting, or short selling – words you might’ve seen cropping up in your feeds in the last few days.
GameStop was one of the companies that loads of hedge funds (companies who do these bets) had bet on to lose a lot of value.
More than four million people are on Reddit, usually discussing stocks and shares and where they’re going to invest money.
But huge numbers of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop.
The demand raised its share price massively, which nobody saw coming, and everyone who had banked on it dropping in value had to buy their shares back.
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