Members of Congress Write to Robinhood CEOs

Two representatives and two senators from Illinois sent a letter to investment app Robinhood’s co-CEOs, Baiju Bhatt and Vladimir Tenev, on Monday raising concerns about the trading platform in light of the recent death by suicide of Robinhood user Alex Kearns. The 20-year-old Kearns’ Robinhood account showed a misleading negative cash balance of $730,000. Although Robinhood planned to improve its user interface in light of the incident, the authors of the letter questioned if the “proposed changes will have any meaningful impact on the ways [the] platform enables and encourages inexperienced investors to engage in high-risk trading.”

Kearns’ account allegedly displayed the substantial negative balance after he performed a “bull put spread” trade, which “generally involves simultaneously purchasing and selling put options in a way that provides a measure of insulation from potential losses.” Two scenarios could have occurred: either Kearns arranged the trade himself and legitimately caused major investment losses, or the trade was a “pre-packaged product” offered by Robinhood. According to the letter, “If the latter [scenario] is true…then Robinhood clearly failed in its responsibility to provide him with clear and accurate information.”

Reps. Lauren Underwood (D-Ill.) and Sean Casten (D-Ill.), along with Sens. Richard Durbin (D-Ill.) and Tammy Duckworth (D-Ill.) wrote the letter to address several additional concerns, including reports of outages that prevented Robinhood users from trading for 17 hours “during a period of historic market volatility,” and the service’s method for approving prospective traders. Questions in the letter include “how many levels of trading options” Robinhood has, how it determines which individuals are eligible to trade at each level, to what extent a user’s age factors into their approval, and what additional eligibility criteria material will be added in the future, among other things.

All concerns listed in the letter relate to a “lack of safeguards appear[ing] to correspond with Robinhood users engaging in much more high-risk and frequent trading activity relative to customers of other retail brokerages.” It was requested that Robinhood respond to the letter by July 24.