By Tom Hals
(Reuters) - The family of a 20-year-old stock trader who committed suicide sued the broker Robinhood for his death, citing its "misleading communications" that caused their son to panic over what he wrongly believed were huge market losses, according to a lawsuit.
Robinhood notified Alex Kearns in June of what he thought was a $730,000 loss on a trade, and when he was unable to communicate with anyone at the company, the college student was thrown into a highly distressed mental state, the lawsuit stated.
As a result, fearing he had obligated his family to repay the huge loss, he ran in front of a train and killed himself, according to the lawsuit, filed in California state court.
"We were devastated by Alex Kearns’ death," said a statement from Robinhood, which added that it was improving its educational materials and more live support staff, among other changes.
Monday's lawsuit said Robinhood has an obligation to know its customers and ensure their trading strategies are appropriate, but instead the broker preyed on inexperienced investors.
Kearns apparently believed an options trade placed through Robinhood had led to a $730,000 loss, far beyond the possible loss of around $10,000 that he had expected, according to the lawsuit. In reality, the loss was covered by other options in Kearns' account, according to the lawsuit.
The lawsuit comes amid growing scrutiny of Robinhood's commission-free trading and seeks unspecified damages.
The app helped fuel a wild rally in shares of video game retailer GameStop Corp (NYSE:GME) and other companies out of favor with Wall Street hedge funds in what has been touted as a revolution in retail trading.
However, Robinhood restricted trading in the most volatile stocks on Jan. 28, a move it said was done to meet capital requirements, sparking outcry among users and demands for its executives to testify before Congress.