Alex Kearns died thinking he owed hundreds of thousands for stock losses on Robinhood, parents set to sue

Author: CBS News
Published: Updated:

20-year-old Alex Kearns took his own life last June mistakenly believing he’d lost nearly $750,000 in a risky bet on Robinhood, the stock-trading app where he started trading as a teenager.

His parents plan to file a lawsuit, first obtained by CBS News, on Monday accusing Robinhood of wrongful death, negligent infliction of emotional distress and unfair business practices.

While the company’s stated mission is to stand up for the little guy and “democratize finance,” Alex’s mother and father say in the lawsuit that Robinhood targeted young and inexperienced customers, then pushed them to engage in risky trading practices. And when those investors needed help – as Alex did the day he died – Robinhood provided no “meaningful customer support,” the suit says.

In an interview with “CBS This Morning,” Dan and Dorothy Kearns said they had a full house last year after the pandemic brought their son Alex home early from college.

Dan said, “To be honest, it was really a joyful household.”

Dorothy Kearns said she and Alex would spend evenings in the kitchen. “And one night he says to me, he’s like, ‘Mom, I don’t — I don’t know what I want to do with my life yet. But I do know I want to help people.'”

Alex was interested in investing, and before he graduated from high school, he opened an account with Robinhood. The app lets anybody buy and sell stocks, with no fees and no experience.

Alex started with his own savings. It was “Grandma and Grandpa money,” Dan Kearns said, from birthday gifts and cash saved from his summer job lifeguarding. “All told he might’ve had maybe $5,000 in his savings.”

Dan and Dorothy Kearns knew Alex was trading stocks.

“I didn’t see the harm in doing that.” Dan Kearns said, adding he spoke with his son about responsible investing and believed Alex had “limited exposure.”

But Dan and Dorothy Kearns didn’t realize Robinhood had also approved Alex to buy and sell options, a risky financial instrument with the potential for huge losses.

“I don’t understand how they allowed that to happen in the first place,” Dan Kearns said.

The Kearns believe Alex’s inexperience is what got him into trouble after a transaction last year. On June 11, he saw Robinhood restricted his account reflecting what appeared to be a negative balance of $730,000.

Later that night, at 3:26 a.m., the company sent an automated email demanding Alex take “immediate action,” requesting a payment of more than $170,000 in just a few days.

In fact, according to the family’s attorneys, Alex may not have lost money at all, because of the way the options bets were structured.

“He thought he blew up his life. He thought he screwed up beyond repair,” Dan Kearns said.

Robinhood had no customer service phone number, but Alex emailed its support address three times late that night and the following morning. He asked for help understanding what had happened, and whether he could still offset the losses with another trade.

Alex wrote, “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?”

In response, he received an automated message: “Thanks for reaching out to our support team!” The email said, “We wanted to let you know that we’re working to get back to you as soon as possible, but that our response time to you may be delayed.” The company assigned him a case number, 06849753.

“And their response was a canned reply,” Dan Kearns said. “Basically, ‘We’ll get back to you later.'”

Dan said his son just wanted an answer, but no one was there to respond. “It haunts me. It really does,” he said.

Later that day, the sheriff knocked on the Kearns family’s front door to deliver the news: Alex was dead.

“I lost the love of my life. I miss him more than anything,” Dorothy Kearns said. “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.”

The day after Alex took his own life, Robinhood sent an automated email suggesting the trade had been resolved and he didn’t owe any money.

“Great news!” The email read, “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!”

Robinhood says its mission is to bring younger and more diverse investors into the market – an approach the company highlighted in its Super Bowl ad this year. The commercial is part of a larger marketing campaign called “We are all investors,” a company spokesperson told CBS News.

“You don’t need to become an investor,” the ad announces, as a young woman in a jean jacket opens the app on her phone. “You were born one. Robinhood.”

But some critics say Robinhood has been reckless in its rush to sign up new investors.

William Galvin, Massachusetts Secretary of the Commonwealth and the chief financial regulator in the state of Massachusetts, says online broker-dealers like Robinhood need greater regulation.

“I think it demands some sort of national standard for this behavior,” he said. “There was a very deliberate effort on the part of Robinhood to particularly entice younger, inexperienced investors.”

Galvin points to the company’s marketing. He said it rewards daily usage of the app and encourages frequent trading.

Galvin’s office filed a complaint against Robinhood in December. The complaint described the app’s features — which included a digital confetti effect when users make trades — as “gamification.”

Galvin said, “They’re not treating it as a serious risk of money.”

Galvin said the app doesn’t exemplify its name. Although the fabled Robin Hood stole from the rich and gave to the poor, he said, that’s not happening on the Robinhood app.

“They have not acted in the best interests of their customers. So the idea that they’re caring for the poor,” he said, “is simply not true.”

What happened to Alex Kearns is of particular worry to Galvin and his team. In Massachusetts alone, they said, they found more than 600 examples of Robinhood customers who, by Robinhood’s own standards, shouldn’t have been approved for options trading, but were.

“Their rush to make money out of this has caused them to add people to their base,” Galvin said, “and to recklessly bring people on board who they probably should have said, ‘No, we won’t qualify you for options right now.'”

In a statement to CBS News, a Robinhood spokesperson said, “We disagree with the allegations in the complaint by the Massachusetts Securities Division and intend to defend the company vigorously.”

Since the death of Alex Kearns, Robinhood said it has “revised experience requirements” for customers seeking riskier types of options, but CBS News confirmed last week just how easy it was to get approved for basic options trading on the app. As part of the sign-up questionnaire, the app asks, “How much investing experience do you have?”

Choose “none,” and Robinhood rejects you from trading options. But the app then asks if you want to update your experience level.

If you change the response to, “not much,” the app approves you for options trading. “Welcome to options,” the app says.

Dan Kearns says the safety checks aren’t strong enough. “How are those guardrails? How does that — how does that stop an 18-year-old from making risky trades that they don’t really understand?”

In a note to his parents before he died, Alex had similar questions. He wrote, “How was a 20-year-old with no income able to get assigned almost $1 million worth of leverage?” He added, “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.”


Mental health resources in Southwest Florida

Below are mental health resources available to Southwest Floridians at the national and local level.

National Suicide Prevention Hotline
suicidepreventionlifeline.org
1-800-273-8255

David Lawrence Center (Collier County)
davidlawrencecenter.org
(239)455-8500

SalusCare Emergency Services
saluscareflorida.org
(239)275-4242

National Alliance on Mental Illness, Collier County
namicollier.org

National Alliance on Mental Illness, Lee, Charlotte, Hendry Counties
namilee.org

The National Alliance for Caregiving offers a free handbook
Circle of Care: A Guidebook for Mental Health Caregivers

Collier County Mental Health Court
ca.cjis20.org/home/collier

Lee County Mental Health Court
ca.cjis20.org/home/lee

Depression and Bipolar Support Alliance
convio.net

Local Support Groups: Anxiety and Depression Association of America
adaa.org

U.S. Department of Health and Human Services (Mental Health and Addiction Insurance Help)
hhs.gov/programs/topic-sites/mental-health-parity

Local veterans resource: Home Base SWFL
https://homebase.org/home-base-southwest-florida/

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