Robinhood Gets Scrutinized by Congress and Gets Hit with Wrongful Death Lawsuit

The Robinhood Controversies: Congress Scrutinizing GameStop Trading and Wrongful Death Lawsuit Filed

In a previous blog post, we briefly discussed Robinhood’s background and how its entry into the trading section affected its competitors.  In this post, we discuss the current controversies that surround the trading app.  Specifically, Robinhood has found itself embroiled in controversies that involve the premature cessation of GameStop stock trading as well as a wrongful death filed against it.

Robinhood Controversy Related to GameStop Stock

Robinhood first catapulted to headlines with the rise and fall of GameStop stock, which had its price and value manipulated by a group of Reddit users.  Using Robinhood to conduct trades, due to its policy of fee-free trading, users on Reddit were able to vault GameStop stock up more than 14,300% last week, which later free-fell back down again to $53.50 after Robinhood restricted users from buying certain stocks on its platform.  As such, once Robinhood decided to step in and temporarily suspend trading of GameStop stocks, its actions triggered Congress to scheduling hearings to scrutinize and discuss Robinhood’s intervention.

Robinhood Controversy Related to a Student’s Suicide

Last summer, after seeing a negative balance of $730,000 in his trading account a college student committed suicide, after he mistakenly believed that he owed that much.  In the suit filed by the family of deceased college student Alex Kearns, the family accused the app of being liable for his suicide because it specifically targeted and lured inexperienced investors into using its app by making its platform similar to videogames and removing typical barriers to trading by providing most of its services for free.  The Kearns family also alleges that Robinhood failed to provide sufficient customer support and investment guidance because Kearns was unable to contact the company for help after discovering his negative balance.

In general, the Kearns family alleges that Robinhood markets itself towards millennials that may be too inexperienced and too immature to grasp the real-world risk and consequences that accompany high-risk trading.  For example, at the time of his death, Kearns did not understand enough about trading to realize that the negative balance in his account did not truly reflect any sort of debt that he owed.  While the lawsuit is still pending, Robinhood has since included new criteria and requirements for customers seeking to participate in advanced trades.

Robinhood currently finds itself embroiled in two major controversies because it:

  • must answer to Congressional hearings regarding its decision to stop trading of specific stocks;

  • is now the defendant in a wrongful death lawsuit; and

  • because its ease of use has drawn criticism and claims that it allows inexperienced users to engage in trading without the proper experience or education.

Related Story: Investing with Robinhood: The Allure and Controversy

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Law, Blog, Technology & DataCeles Keene