Robinhood, the fast-growing trading app, has been the center of attention lately due to the media-hyped battle between young, novice, aggressive traders and experienced short-selling hedge funds. The trading platform was lambasted for prohibiting Reddit-driven investors from buying certain “meme stonks” that were the center of the tug-of-war.
While this controversy stirred up serious issues, it pales in comparison to this heartbreaking story. Alex Kearns, a 22-year-old college kid, home from school due to the pandemic, started trading stocks and options on Robinhood. In a horribly unfortunate event, Kearns died by suicide, mistakenly believing that he may have lost over $700,000 in options trading.
His parents filed a lawsuit accusing Robinhood of wrongful death, negligent infliction of emotional distress and unfair business practices. They allege that Robinhood’s marketing efforts targeted Gen-Z and younger Millennial customers. The parents also accused the trading app of enticing the novice investors into making risky trades. Kearn’s dad, Dan Kearns, said, “He thought he blew up his life. He thought he screwed up beyond repair.”
It seems that there was a type of glitch in which the balance wasn’t updated. Kearns tried to get in touch with the company, but Robinhood didn’t have a customer service number. His emails were met with automatic responses.
Misbelieving that he made a terrible mistake in judgement, Kearns killed himself by stepping in front of a train. His suicide note read, “How was a 20-year-old with no income able to get assigned almost a million dollars worth of leverage?”
In a cruel turn of fate, after his suicide, the app sent out a message saying, “Great news! We’re reaching out to confirm that you’ve met your margin call and we’ve lifted your trade restrictions.”
William Galvin, the Massachusetts Secretary of the Commonwealth and the chief financial regulator in the state, asserted that there should be greater regulation over online brokers, such as Robinhood. Galvin said, “I think it demands some sort of national standard for this behavior. There was a very deliberate effort on the part of Robinhood to particularly entice younger, inexperienced investors.” In a complaint filed by Galvin’s office, it was contended that the app’s features, which include a digital confetti effect when users make trades, exemplify “gamification.”
A Robinhood spokesperson told CNBC, “We were devastated by Alex Kearns’ death. Since June, we’ve made improvements to our options offering. The trading app went on to say, “We remain committed to making Robinhood a place to learn and invest responsibly.”
The over-the-top GameStop day trading story, pitting scrappy, novice investors against sharp hedge fund short sellers, also garnered the attention of Senator Elizabeth Warren. In a letter to Allison Herren Lee, the acting chair of the U.S. Securities and Exchange Commission (SEC), Warren wrote, “I am deeply concerned that these casino-like swings in the value of GameStop and other company shares are yet another example of the gamesmanship that interferes with the ‘fair, orderly and efficient’ function of the market.”
Warren demanded to know what the SEC was doing to “address market manipulation,” relative to the incredible run-ups in the stock prices of a number of companies touted by members of the r/wallstreetbets subreddit. She asserted the spikes in value are “raising obvious questions about public confidence in the market and those trading in it.”
During former President Donald Trump’s administration, he was adamantly against regulations, contending that rules could be overly burdensome for companies and an anathema to their growth. Trump famously bragged that for every new regulation that was proposed, two would be ripped up.
In light of the era of looser regulations, you have to wonder if Wall Street has become too lax and complacent. Given the recent day trading and hedge fund short-selling scandal, along with a newly installed head of the SEC, Gary Gensler, there is a belief that President Joe Biden’s administration will take a stricter stance on enforcing regulations for the financial industry, including online trading brokerage firms, like Robinhood.
It’s a little too late for the Kearns family. His mom said, “I lost the love of my life. I miss him more than anything. 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.”