About the Robinhood`s trader
Alex Kearns was a 20-year-old sophomore and one of Robinhood's top traders, the lawsuit says. He took his own life in April 2016. The suit claims Kearns started trading with $5,000 from earnings as an assistant golf pro at The Country Club in Brookline, Massachusetts. Kearns` parents knew that their son was trading stocks. But the lawsuit claims they were unaware of his Robinhood account and believed he was day trading with a $20,000 Merrill Lynch cash account.
Kearns "was so addicted to stock trading on his phone that he would stay up all night engaging in marathon sessions," according to court documents filed by his mother, Debra Kearns.
Kearns became a "Robinhood millionaire" thanks to his skill for picking winning stocks such as Tesla and Netflix — but that also made him a target for hackers, according to the suit. Hackers repeatedly tried to break into Kearns' mobile account by guessing his password and security questions using personal information like his mother's maiden name and where he went to high school — and even impersonated him online and attempted to direct Robinhood customer to change or reset his login information.
Hackers and debts
The suit claims Kearns told the company he was being hacked numerous times before his death, but received no help. Soon after the hackers broke in, Kearns lost $800,000 in one morning when he sold all his stock in a company called NantHealth after receiving an email that appeared to be from Robinhood saying he needed to sign into his account immediately. It turned out that email wasn't actually sent by the brokerage — but rather by one of the hackers who had broken into Kearns' account weeks earlier.
"Not only did they fail him, but they failed to save his trading information, so when he called back the next day, Robinhood misappropriated his trade orders and sold off all of his securities," Rose said.
Kearns was able to rebuild over the next few months — but the suit claims hackers broke into his account a fourth time, stealing another $100,000. He was also being harassed by people impersonating him online and through texts from spoofed numbers that appeared to be Robinhood customer service offering to help recover his money unless he paid them a fee in Bitcoin or another form of cryptocurrency.
The suit claims Kearns' interactions with these fake Robinhood representatives led many of the people involved to believe he was working with the hackers who had stolen his money.
Kearns was found dead of an apparent suicide at his family's home in Dedham, Massachusetts, on April 16 after sending out emails telling friends and family he planned to kill himself.
The suit claims Robinhood should have known about the phishing attempts targeting Kearns because they were documented by employees during internal investigations into the hacking incidents themselves.
The suit also claims that instead of notifying Kearns of what was happening or disabling his account after multiple hacks, Robinhood sent him emails offering to up his buying power at a discounted rate. The lawsuit also alleged that Kearns made large profits off of confidential information before it became public and then sold the shares of the company shortly thereafter, which is known as insider trading. The lawsuit did not provide further details about what kind of information he may have had access to or when exactly this happened.
Robinhood is being sued by the family of the trader who committed suicide
He had a negative $730,165 cash balance at the time of his death.
The suit filed by the family of the trader who committed suicide claims those efforts to bait Kearns into depositing more money were specifically designed to take advantage of someone who had lost so much already and was desperate for a return. Rose said he believes Robinhood employees at least suspected something nefarious was going on with Kearns' accounts — because even though hackers repeatedly tried to use personal information like his mother's maiden name and where he went to high school, they could never answer security questions about those topics correctly over the phone.
"They knew it wasn't him," Rose told The Post. "He was able to guess what the answers were, but then they would come up with another question that he couldn't answer."
Kearns pleaded with Robinhood to investigate in November 2015, but it wasn't until after he returned home that the company started an internal probe into the hacking. That investigation was completed just three days before Kearns committed suicide. Rose said Robinhood also ignored multiple requests from Kearns' mother to help her son recover his money or disable his account.
A nine-count indictment against Ehab Ashoor, 24, of Brooklyn, New York, alleged he hacked into accounts held by over 50 people and caused $2 million in losses through securities trades, including at least one involving NantHealth stock in January 2016. The defendant was arrested on Nov. 22 after fleeing to Saudi Arabia and extradited back to the United States last month. He has pleaded not guilty and is being held without bail.
Kearns was "a very trusting guy," but the brokerage should have at least disabled his accounts or notified him that someone had changed his contact information, Rose said.
Class action lawsuit against Robinhood
Class actions suits allege that companies have done things that harm a large number of people and that the company did not do enough to prevent or stop the behavior.
A class-action suit is filed on behalf of all of the people who were harmed, so it's up to them whether they join the case or hire their own attorney. Class members also do not need to prove exactly how much they lost in order to get part of any settlement offer.
The federal securities law governing brokers requires brokerage firms like Robinhood to establish reasonable procedures for safeguarding customer funds and securities and promptly investigating any irregularities in account transactions. The suit asserts that Robinhood violated this requirement by failing to investigate Kearns` repeated claims about his compromised accounts and by continuing to accept money from him after his losses had exceeded $500,000 — which is the amount that triggers a mandatory investigation under FINRA rules.
The suit states Robinhood violated FINRA Rule 2020 by failing to establish and implement reasonable written policies and procedures for safeguarding customer funds and securities; failed to conduct an adequate and timely investigation into the suspicious activity in Kearns accounts which caused over $25,000 in losses; failed to properly supervise its employees with responsibilities related to the handling of accounts; and negligently performed direct securities trades on behalf of customers without their knowledge or authorization.