Robinhood co-founders Vlad Tenev (L) and Baiju Bhatt (R) in 2015.
Ben Margot/ASSOCIATED PRESS
With additional reporting from Antoine Gara, John Dobosz and Jeff Kauflin
Following the tragic suicide of a 20-year-old Robinhood trader after he saw a $730,000 negative balance in his account, the company’s founders released a statement pledging to tighten eligibility criteria, educational resources and upgrades to its user interface for customers trading options.
Forbes first broke the story Wednesday of the death of Alex Kearns, who may have misunderstood the way Robinhood presented the results of his trades. The tragedy raises questions over the risks of targeting young, unsophisticated investors with its zero commission platform and “gamified” interface.” With the pandemic forcing people to shelter at home—including Kearns, who was a college student—many began trading. During the first quarter alone, Robinhood attracted 3 million new accounts.
In a statement on Friday, Robinhood co-founders Vlad Tenev and Baiju Bhatt said that they were “personally devastated by this tragedy,” and pledged to “improve Robinhood’s customer experience.” The company is looking at making adjustments to its platform around option flows involving multi-leg exercise and assignment.
Robinhood is also working on changes to its user interface, namely the way buying power is displayed: In Kearns’ case, although his account showed a balance of $16,000, he misinterpreted his negative $730,000 buying power and cash balance as debt that he owed.
As Forbes first reported, it was likely that Kearns was similarly involved in what is likely a “bull put spread,” which involves selling put options at a higher strike price, and buying puts at a lower strike price, both with the same expiration. Robinhood is now pledging to add new criteria and educational resources for customers seeking to buy and sell options, in order to ensure they more fully understand the speculative nature of the trades.
The company is also expanding its educational content related to options trading, with more information being added on early options assignments in its help center. Robinhood will hire a new “Options Education Specialist” to further enhance its new offerings. In the near-term, the company is “rolling out improvements to in-app messages and emails” that it sends to customers about their multi-leg options spreads, while also adding more details to its platform about the mechanics of early options assignments.
“These changes will take a bit of time to roll out, but our teams are hard at work,” Tenev and Bhatt said. “We remain ever committed to providing the best investing experience as well as the resources customers need to get and stay informed.”
The company will also donate $250,000 to the American Foundation for Suicide Prevention.
If you or someone you know is in crisis, please call the National Suicide Prevention Lifeline at 800-273-TALK (8255) or text TALK to 741741.